UNIT 3 - Chap 13: The Marketing Mix: Price

Question 1

What are the 5 types of pricing? (5)

Answer 1

1. Cost plus pricing
2. Competitive pricing
3. Penetration pricing
4. Price skimming
5. Promotional pricing

Question 2

What is the definition for cost plus pricing?

Answer 2

Estimating how many products will be sold, Calculating the total cost of making these products and then adding a percentage mark up for profit. ​

Question 3

What is the definition of competitive pricing?

Answer 3

Setting prices In line with your competitors or just below them

Question 4

What is the definition of penetration pricing?

Answer 4

When the price is set lower than the competitors’ prices in order to be able to enter a new market. ​

Question 5

What is the definition of price skimming?

Answer 5

A high price is set for a new product on a market

Question 6

What is the definition of promotional pricing?

Answer 6

When a product is sold at a very low price for a short period of time E.g. 25% off or BOGOF​

Question 7

What are the 2 benefits of cost plus pricing? (2)

Answer 7

1. Each product earns a profit for the business ​
2. It is an easy method to apply

Question 8

What is the 1 drawbacks of cost plus pricing? (1)

Answer 8

1. The business could lose sales if the selling price is too high compared to competitors. ​

Question 9

What are the 2 drawbacks of competitive pricing? (2) ***

Answer 9

1. If the costs of production of the business are higher than the competitors (perhaps because they use higher quality raw materials) then a competitive price could lead to a loss being made​
2. A higher quality product may need to be sold at a higher prices to give it a higher quality image.

Question 10

What are the 2 drawbacks of penetration pricing? (2)

Answer 10

1. As it is sold at a low price, profit per unit may be low. ​
2. Customers might get used to the low prices and if the business want to increase prices in the future this could lead to customer dissatisfaction

Question 11

What are the 2 drawbacks of price skimming? (2)

Answer 11

1. The high price may discourage some customers from buying the product ​
2. The high profits the business is making may encourage other competitors to enter the market. Could result in a decrease in sales. ​

Question 12

What are the 2 drawbacks of promotional pricing? (2)

Answer 12

1. The revenue will be lower per unit because the price of the product has been reduced ​
2. It might lead to a price war with competitors as they may reduce their prices too in response and so customers may purchases competitor’s products instead ​

Question 13

What is PED?

Answer 13

PED (Price elasticity of Demand) is the responsiveness of demand to a change in price. A product can be either price elastic or inelastic ​

Question 14

What is the definition of price elastic?

Answer 14

Consumers are very sensitive to a change in price I.e. if prices increases, demand will decrease significantly ​

Question 15

What is the definition of price inelastic?

Answer 15

Consumers are not very sensitive to a change in price I.e. If the price of a product increases, demand will not decrease significantly.

Question 16

If the demand for a product is price elastic then what should you do with the price?

Answer 16

Not increase/raise the prices. ​

Question 17

If the demand for a product is price inelastic then what should you do with the price?

Answer 17

Increase/raise the prices. ​

Question 18

What is the benefits of competitive pricing? (1)

Answer 18

1. The product is not overpriced compared to competitors so sales are likely to be be higher ​

Question 19

What are the 2 benefits of penetration pricing?

Answer 19

1. Useful for new products to encourage customers to buy the product ​
2. Will lead to an increase in sales and an increase in market share

Question 20

What are the 2 benefits of promotional pricing?

Answer 20

1. It is useful for getting rid of stock that will not sell e.g. summer clothes at the start of winter ​
2. It can help to renew interest in the product if sales are falling

Question 21

What are the 2 benefits of price skimming?

Answer 21

1. Skimming can help to make the product be perceived as of high quality​
2. Research and development costs can be recouped from the profit made on the the product at the high price