Unit 3 - 7Ps - Price

Question 1

Price

Answer 1

The money charged for a product/service (£).

• Everything the consumer has to give up in order yo acquire a product/service.

Question 2

Price Skimming

Answer 2

Sets a relatively high initial price then slow decreases it.

• (E.g. Apple introducing the Apple Watch).
• Used before a business faces competition

Pro - Maximise rev, cover high R+D costs
Con - Slower sales growth

Question 3

Price Penetration

Answer 3

Sets a low initial price to gain market share.

Pro - Increase market share

Con - Lower SR profits

Question 4

Dynamic Pricing

Answer 4

Prices change frequently in response to changes in demand.
(E.g. Peak/off peak, day/ weekend).

• Requires technology to track bookings/sales.

Question 5

Predatory Pricing

Answer 5

Deliberately cutting prices to force/prevent competition (smaller businesses) out of the market.

Once these businesses have left then prices will go up.

• Anti-competitive and illegal if it can be proved.

Question 6

Psychological Pricing

Answer 6

Used to play on consumer perceptions.

• E.g. High price = quality?
• E.g. £9.99 rather than £10. The 9 seems much less than 10.

Question 7

Cost Plus Pricing

Answer 7

Adding a certain amount (mark up) to the cost of a product.
- Usually a percentage - to determine price.

E.g. Product cost = £1.50 to produce and mark up = 200%, the final product will be £1.50 + £3 (200%) = £4.50.

Question 8

Loss Leader Pricing

Answer 8

Products sold at/or below cost price.
- Lose money but will increase sales and market share.

• Used a lot by supermarkets on essential products such as bread, toothpaste etc.

Question 9

Price Discrimination

Answer 9

Charges different groups of consumers different prices for the same good/service.

• Differentiation by target market (e.g. PED).
• Entice new customers through lower prices.

Question 10

Competitive Pricing

Answer 10

Charging the same or lower prices than competitors.

• Used by supermarkets and department stores