4.5 - 7Ps of Marketing Mix: Price

Question 1

Price

Answer 1

The amount paid by a customer to purchase a good or service

Question 2

Factors for pricing decisions (DRASTIC)

Answer 2

• demand: the greater the demand the higher the price can be set
• rivalry: the higher degree of competition, the more price competitive firms have to be
• aims: for-profits and non-profits will price their products differently
• supply: the lower the supply of a product, the higher the price tends to be due to scarcity
• time: products facing obsolescence will be priced lower (antiques may increase in price due to scarcity)
• image: firms with a prestigious image can charge higher prices
• costs of production: the higher the costs, the higher the prices

Question 3

Pricing methods (5)

Answer 3

• cost-plus (mark-up) pricing
• penetration pricing
• loss leader
• predatory pricing
• premium pricing

Question 4

Cost-plus (mark-up) pricing (+ advantage & disadvantage)

Answer 4

Working out the average cost per unit of a product and then adding a percentage mark-up
* simplistic and easy to calculate
* does not consider the needs of customers

Question 5

Penetration pricing (+ advantage & disadvantage)

Answer 5

When products are initially sold at a low price to try and break into the market and quickly gain market share
* suitable for mass market products sol in large volumes and new firms entering established markets
* if prices are set too low it can cause customers to percieve the product as inferior or poor quality

Question 6

Loss leader (+ advantage & disadvantage)

Answer 6

Selling a product at or below its cost value. Used to tempt customers into the store to buy more profitable products at the same time and recoup the loss by selling complementary products
* incentivises customers to switch brands
* setting prices too low may damage prestige and image of brand

Question 7

Predatory pricing (+ advantage & disadvantage)

Answer 7

Temporarily reducing prices with the intention of forcing a competitor out of a market. Used when an existing firm is threatened with new competition (leads to price wars that ensure a race to the bottom - sometimes illegal)
* can bring customers to a firm in the short-end
* may not necessarily stay with the firm in long-term

Question 8

Premium pricing (+ advantage & disadvantage)

Answer 8

When the price of a good or service is set significantly higher than similar competing products. Usually because the product is of higher quality or is sufficiently unique enough to justify price
* generates higher profit margins and higher barriers to entry for competitors
* limits numbers of customers and requires strong brand loyalty