1.3.3a : Pricing Strategies Flashcards
(22 cards)
What are the advantages of low prices ?
Lower prices than your competitors may give you a competitive advantage if they see you product as better value for money
May help you sell old stock or stock that is about to go past its sale by date
What are the disadvantages of low prices ?
Low prices my be negatively associated with low quality and sales may suffer as a result
What are the advantages of high prices ?
Some goods sell better when they are higher as the buyer associates higher the price with better quality
Veblen good - as price increases so does demand , these goods are all abut image. You buy hem due to the image it will give you
What are the disadvantages of high prices ?
Higher prices than your competitors may lead to a decrease in demand for your products and an increase for your competitor as they may bee seen as a better value for money
What is price skimming ?
Skimming pricing - A product is priced high to begin with as it has desirability factor that means consumers will want it as soon as it s released. The price can be lowered later, but it is priced high to begin with to take advantage of it being in demand for profit.
What are the pros of price skimming ?
Potential for high profits , which can help to pay off research and development costs - Product may get a reputation for quality , encouraging brand loyalty - Additional profits made can be invested into the next new product - Quick recovery costs
What are the cons of price skimming ?
Pice skimming cannot last for long , as competitors soon launch rival products which outs pressure on the price - May slow down the growth in sales of the product , because its expensive , decreasing the number of customers who are able to buy the product
What is penetration pricing ?
This means setting prices really low for a new product to encourage sales and to persuade customers to try the product for the first time. Then when customers like the product and have o keep buying it , the business raises the price. Low prices should gain the business more market share.
What are the pros of penetration pricing ?
Pros : Builds customer usage and loyalty - Can help develop long-term profitability of having higher sales and a higher market share
What are the cons of penetration pricing ?
In the short term , it is likely o result in lower profits than would be the case if prices were set higher - It may be difficult to raise the selling price in the future - Businesses may anger customers with the sudden increases in price , they may feel exploited
What is cost plus pricing ?
This is worked out by calculating the total costs to produce a product and then adding extra amount on that which will be profit. This is called adding a ‘MARK UP’. Most often used in retail.
What are the pros of cost plus pricing ?
A profit is guaranteed on each items sold - If customers know the mark up is low , this will be seen as ethical
What are cons of cost plus pricing ?
If the mark-up is set too high , the price may be expensive compared to rivals and therefore uncompetitive - If customers discover that you have adde a very high mark-up , they may feel exploited and will damage brand image
What is competitive pricing ?
This is where a business will look at what their competitors are charging and then take an indication for what price to charge. This is often used when there is strong competition in the market and clusters are faced with a wide choice of where to buy from
What are the pros of competitive pricing ?
Selling prices should be inline with rivals , so prices should be competitive no therefor attract customers
What are the cons of competitive pricing ?
The business will nee to research what its competitors are charging , which could increase costs and decrease profits - You my be doing your product and disservice since it is better quality than competitors - Undercutting may lead to price wares
What is psychological pricing ?
This is a pricing strategy that impacts the consumer’s subconscious mind , including pricing the good and services slightly lower than a whole number. E.g. $99 instead of $100
What are the pros oof psychological marketing ?
Sales volume will increase which improves cash low and can increase market share - Encourages customers to trial a products , who may become loyal once the price has increased - Enables a business to clear old stock
What are the cons of psychological marketing ?
Customer distrust - can be seen as manipulative
Reduced effectiveness over time
Not suitable for premium or luxury brands
What is predatory pricing ?
Prices are set unrealistically low in order to eliminate competitors and create a monopoly. Consumers benefit from lower prices in the start but are disadvantaged in the long term
What are the pros of predatory pricing ?
It hurts all competitors to get rid of competition in the market , once it is eliminated it creates a monopolistic environment.
What are the cons of predatory pricing ?
It is illegal to practice this strategy and it can cause negative publicity
