Price (Marketing Mix)

Question 1

Types of pricing strategies

Answer 1

Price skimming
Price penetration
Cost plus pricing
Competitive pricing

Question 2

Price skimming

Answer 2

When you price higher initially and it lowers over time

Question 3

Price penetration

Answer 3

When a business tries to increase market share by lowering its price

Question 4

Cost plus pricing

Answer 4

The cost of manufacturing the product plus a profit mark-up

Question 5

Competitive pricing

Answer 5

When a product is priced in line or just below competitors’ prices (to try to capture more of the market)

Question 6

What determines a price

Answer 6

Costs
Product life cycle
Degree of competition
Quality of the product

Question 7

Advantages of price skimming

Answer 7

Maximise revenue
Covers fixed cost quickly
Your product is seemed higher quality

Question 8

Disadvantages of price skimming

Answer 8

Slower sales
People may think its to high
Competitiors may sell for cheaper

Question 9

Advantages of price penetration

Answer 9

Increases market share
Attracts customers
Switches customers from competitors

Question 10

Disadvantages of price penetration

Answer 10

Your product may seem low quality
Short term profits
Risky if customers have brand loyalty to your competitors
Customers may get used to the low prices, harder to set higher prices in the future

Question 11

Advantages of cost plus pricing

Answer 11

Easily can cover costs
Easy to work out and use

Question 12

Disadvantages of cost plus pricing

Answer 12

Ignores market conditions and customers wants
Competitors may have lower prices

Question 13

Advantages of competitive pricing

Answer 13

Have on edge over your competitors, increase market share

Question 14

Disadvantages of competitive pricing

Answer 14

Ignores customers
you might risk selling at loss
Risky if customers have brand loyalty
Pricing is not unique

Question 15

Promotional pricing

Answer 15

When a product is sold at a low price for a short period of time to increase short term sales

Question 16

Dynamic pricing

Answer 16

When business change product prices depending on the level of demand

Question 17

Price elastic demand

Answer 17

When consumers are very sensitive to changes in prices and the percentage change of products demanded/bought is greater than the percentage change in price

eg: prices increase by 5% then sales decrease by 15% = falling revenue for the business

This usually happens when the product is common on the market so consumers can easily buy a cheaper version of it (eg: chocolate bars)
Therefore its better to decrease prices to increase revenue

Question 18

Price inelastic demand

Answer 18

Where consumers are not sensitive to changes in the prices
The percentage change in quanity demanded/bought is less than the percentage change in price

Prices increase by 15% then sales decrease by 5% = increase revenue for the business

This usually happens to products that are not common on the market (have less competitors) so consumers cant really chose a cheap option and it may be just easier if they stick to buying the product
Therefore its better to increase prices to increase revenue