3.4e - Pricing Decisions Flashcards
Price maker / leader definition
A business that sets their own price
Price taker definition
A business that copies the prices of competitors
Features of penetration pricing:
- A low price is used to enter the market and build up loyalty
- Price is raised once customers are loyal
- Works well where products lack differentiation
Disadvantages of penetration pricing:
Customers may expect low price to continue, so it is difficult to raise it without losing customers
Features of price skimming:
- A high price is charged when a new product enters the market
- Works well with differentiated products
Disadvantages of price skimming:
- Potential customers can be put off by initial high price
- Customers who bought the product at its initial price may be annoyed when price lowers
Competitive pricing definition
A pricing strategy involving setting prices that reflect what the competition is charging
Predatory pricing definition
A pricing strategy involving using deliberately low prices in order to put competition out of business
Loss leader pricing definition
A pricing strategy involving selling the product below cost in order to attract customers to buy other products sold by the firm
Psychological pricing (odd number pricing) definition
A pricing strategy involving setting a price psychologically lower than it is
Cost-plus pricing definition
A pricing strategy involving the price being set as the average cost of a product plus a sum to ensure a profit
Price discrimination definition
When a product is sold at different prices to different groups of customers (e.g. according to age)
Dynamic pricing definition
A pricing strategy involving changing prices depending on competitor prices and demand
What are the influences on pricing decisions?
- Cost of product
- Competitors
- Type of product
- Target market
- Objective of business
- PED
- State of economy
