1.3.3 pricing stategies Flashcards
(21 cards)
whats costs plus pricing
cover the cost then add as much profit as desired
whats competitive pricing
copying competitors prices so customers consider other factors
whats price skimming
prices start high to exploit loyalty and drop over time
whats penetration pricing
start low to attract customers then increase prices over time
whats predatory pricing
price so low it kills small competition (its illegal in many countries)
whats psychological pricing
trick customers into thinking the deal is better
advantages of cost plus
easy to calculate
ensures all costs are covered
provides a predictable structure
offers transparency to customers
disadvantages of cost plus
- doesn’t consider market demand or competition
- may not optimise profits
- limited flexibility to responding to change
- potential for inaccurate pricing
advantages of competitive pricing
- potential increase market share
- attracts an increase in customers
- maintains relevance
- prevention of price wars
disadvantages of competitive pricing
lower profit margins
lack of price flexibility
difficulty in gaining competitive advantage
dependency on competitors
advantages of price skimming
allows maximum revenue
creates premium perception
competitive advantage
generates high initial profits
advantages of penetration pricing
stimulates demand and increases sales
sets a foundation for loyalty
helps in quickly gaining market share
attracts price sensitive customers
disadvantages of penetration pricing
associations of lower quality may be made
could impact brand perception
rivals may engage in price wars
lower profit margins
advantages of predatory pricing
can lead to market dominance
increased market share
discourages new competitors
potential long term goals
disadvantages of predatory pricing
often illegal and can bring legal issues
may experience significant financial loss
-reputation damage
can disrupt market (price wars)
advantages of psychological pricing
attracts price sensitive customers
encourages impulsive buys
enhance brand image
customer engagement
disadvantages of psychological pricing
perception of lower quality
some may view as manipulative
can be challenging and time consuming
may lead to profit margins being lower
what to consider when choosing a pricing strategy
consumer income
market demand
pricing strategies of competitors
costs of production, marketing and overhead expenses
profit aims and objectives
amount of brand loyalty
disadvantages of price skimming
High initial prices can deter price-sensitive customers
Competitors may quickly enter the market with lower-priced alternatives
Initial sales volumes may be lower than expected
If consumers perceive the product as overpriced, it may harm the brand’s reputation
advantages of penetration pricing
the low price can attract a large number of customers quickly
may develop brand loyalty due to the perceived value
low price can deter potential competitors from entering the market
Higher sales volumes can lead to economies of scale
disadvantages of penetration pricing
can lead to reduced profit margins
may perceive the product as lower quality
Maintaining low prices may not be sustainable in the long run, especially if production costs increase.
Customers may come to expect low prices, making it difficult to introduce new products at higher price points.
