Chapter 55 - Price Flashcards
(20 cards)
What does the pricing of a product reflect?
Value and Quality
When pricing what does a business need to consider?
Costs of the business
Prices charged by competitors
Willingness of consumers to invest in the product
Business’s aims and objectives.
5 Factors affecting pricing of a product or service
Objectives of a business and aims for a given product or service ; what type of business it is
Consumers, their income and taste/preferences/feedback and reviews
Cost of producing the good
Level of demand within the market
Level of competition
Stage in the product life cycle
Economic environment - boom or recession
Value of the pound - exchange rates
Legislation
Actual nature of the product or services
What are Market Forces and how do they affect pricing?
Market forces refer to supply and demand, which determine the allocation of scarce resources and the relative prices of goods, services, and assets in a market economy
Factors measuring change in level of demand:
Nature of the product - whether it is a necessity or luxury product)
Level of price change
Income of consumer
Number of previous price increases
How high the product is on the consumers preference scale
In price elasticity, what does the term mean?
Elasticity measures the response of demand to a change in price (price elasticity of demand or income elasticity of demand).
On a graph, at which point will represent the demand of a product or price and state the name of the point.
Points at which demand and supply intersect represent the equilibrium price.
Explain Price Skimming
Skimming describes the process in which the business sets a high price for its goods and services and gradually lowering it.
What is the purpose of Price Skimming
Attempts to gain profits quickly
Explain Competitive Pricing/Competition-based Pricing
This is where a business sets the price of its good below the pricing of the competitors.
What is the purpose of competitive pricing/competitors-based pricing
It has the intention of gaining additional sales and ‘beating’ its competitors by appealing to the masses.
Explain Loss Leaders
This pricing strategy usually reduces the price of essential products such as sugar, milk, soups, beans and bread at below costs.
What must be thought of when using Loss Leaders as a pricing strategy
Careful consideration is given to the placements within the shop, to ensure customers pass a wide range of products that is hoped they will purchase, often on impulse.
Why might Loss Leaders have a limitation
Its limitation meets at the sales. Reducing essential goods below costs must be compensated for the losses made on the loss leaders.
Explain Psychological Pricing
It involves setting a price that sounds less than it really is. Its the removal of a minor amount of money ( pennies ) to make the item sound cheaper.
Example of Psychological Pricing
Charging 99 pence’s sounds substantially cheaper than a pound. Similarly, charging £9.99 sounds much less than £10
Purpose of Psychological Pricing
Appeals cheaper and valued quality to the masses.
Explain Pricing Penetration
Pricing penetration is
Explain two pricing strategies a business might use when launching a new product.(4 marks)
Define the term price elasticity of demand (PED) and explain how it might affect a business’s pricing decisions.(6 marks)
