Pricing strategies

22 flashcards · Other · by Addaneye

1. What pricing strategies are used for new products?

   price skimming penetration pricing

2. What is price skimming?

   Launching a new product at a high price while the product is still unique

3. What is penetration pricing?

   Launching a new product at a low price to encourage customers to try it

4. Advantages of price skimming

   high prices help to create a desirable image for the product early buyers will buy at a high price in exchange for exclusivity high prices can help to cover the costs of innovation

5. Disadvantages of price skimming

   May be seen as a rip off Early buyers may be frustrated when product begins to fall Image may suffer when price begins to fall

6. Advantages of price penetration

   Low prices mean lower risk for consumers Low prices mean high sale volumes cutting production costs Encourage customers to develop habit of buying product

7. Disadvantages of price penetration

   Product's image may be cast as cheap Likely to create a higher price elasticity

8. What pricing strategies are used for existing products?

   cost-plus pricing predatory pricing competitive pricing psychological pricing

9. What is cost-plus pricing?

   Price charged = unit cost + (% mark-up)

10. Benefit of cost-plus pricing

    Should guarantee a profit is made on each unit sold

11. Drawback of cost-plus pricing

    Ignoring the market may mean an unrealistic price is generated

12. What is predatory pricing?

    A strategy that sets price low enough to force competitors out of business - only on a local business

13. Benefit of predatory pricing

    Once a rival has been forced to shut down, they can increase their prices

14. Drawback of predatory pricing

    Can be illegal

15. What is competitive pricing?

    Charging a price at the market average or at a discount to the average

16. Benefit of competitive pricing

    Price will not put off customers buying the product

17. Drawback of competitive pricing

    Businesses have little control over the price they charge

18. What is psychological pricing?

    Prices are set just below a whole number

19. Benefit of psychological pricing

    Can help nudge customers to make a purchase

20. Drawback of psychological pricing

    It may have little effect on many planned purchases

21. What factors determine the most appropriate pricing strategy?

    Differentiation PED Competition Strength of brand Stage in product life cycle Costs

22. Changes in pricing to reflect social trends

    Online sales Price comparison sites