Unit 2 KA3.3- Marketing Mix - Price Flashcards
What does a business factors affect the price a business sets its products?
Competition – Should a business follow the lead of its competitors when it comes to pricing or adopt its own pricing strategy?
Quality – Does the product reflect its price?
Image – In what ways will the price of a product affect a customer’s perception of it?
Cost – How will the cost of making the product be reflected in the price?
Profit per unit – How much money should a business try to make compared to the cost of each individual product?
Price is always linked to value. Customers will look at a product and think “Is it worth that?”
What are the different types of pricing strategies?
High price
Market price
Low price
Psycological
Cost plus
Penetration
Promotional
Price discrimination
Destroyer
Market skimming
Loss leader
Define high price
Businesses that use a high-price strategy deliberately have their price higher than rivals. This is to signal luxury or quality.
-They may not rely on a large number of sales
-They will usually have a high-profit margin on each sale
-It may be difficult to attract customers who may look for better value from the competition
Define market price
This long term pricing strategy relies on setting your price at the same level as competitors and rivals. The business will then compete on other factors such as convenience, customer services or after sales service.
Define low price
This long term pricing strategy is set below the market price in order to attract customers.
Customers will often look for the product that is cheapest as a way of saving money. They will only do this if they see the product as value for money.
Low prices can be associated with poor quality, even if this is not always the case. This might put some customers off buying a product.
Define psychological pricing
Psychological pricing is used to make customers perceive the price of a product is lower than it is.
For example, charging £19.99 for a product instead of £20, the customer will perceive the product is less than £20 and that they are receiving a good deal. This could ultimately secure the sale.
Define cost plus pricing
Cost-based (cost plus) pricing - This method of pricing is based on calculating the cost of producing the item and then adding on the percentage profit required by the company.
For example, if a cake costs £1 to make and the company wants to make a 50% profit, they will sell the cake for £1.50.
This method of pricing makes sure that all production costs are covered, although it does not consider any external factors such as the competitors pricing or the economic climate.
Define penetration pricing (haha, funny name)
Penetration pricing is used to enter a new market. The price will be set lower than competitors to gain market share.
Once a product becomes established the price will increase to be more like the market price.
This strategy can be used to encourage customers to switch brands, although it does mean the company will not be making much profit during the initial launch of the product.
Define promotional pricing
Promotional pricing is a short term pricing strategy. Prices are reduced for a period of time through discounts, special offers or the use of vouchers.
This strategy is often used to attract a lot of media interest or to help clear old or obsolete stock, for example during January sales.
Define price discrimination
Price discrimination is a short term pricing strategy used when demand for a product or service may change due to changes in consumer demand.
Demand-orientated pricing is when price will fluctuate based on demand
This means that you may pay different prices for the same product or service at different times of day or at different times of the year, in different locations or when different prices are charged for different customers. For example:
-Train tickets have different prices for peak times (like the morning rush hour) and off-peak times (during the day when there is less demand). Prices also vary depending on age.
Define destroyer pricing
Destroyer pricing is a short term pricing strategy used where the cost of an item is lowered below competitors IN ORDER TO ELIMINATE THEM FROM THE MARKET (Remember that because that is the part which will get you the mark in the exam)
Define loss leader pricing
This is a method of selling certain products at a loss or below market value to encourage customers to come into a business. The hope is that they will buy other full price items.
This method of pricing should increase sales of other full price products in the store.
Loss leaders can be used to increase customer numbers and may create customer loyalty.
