Price Flashcards
Price
There are a wide variety of pricing strategies available to businesses. Before they can consider which to adopt, businesses must take into consideration the effects of supply and demand.
Price takers
A price taker is a business that must accept the prices charges by leading competitors within the market.
Businesses are unable to influence the price of a product in the market
Price Maker
A price maker is a business that has enough market power to influence the prices within the market.
When a business is not a price taker it has the opportunity of using price strategies.
Market-orientated strategies - businesses produce what the market wants, this means that a market orientated business will set a price at the level the market is willing to accept
Cost-based strategies - businesses are product orientated when they produce goods with in-depth reference to the needs of consumers, this means that they will set a price related to the cost of producing the product
Price skimming
This main aim of this strategy is to maximise profits earned on a product by charging a high price for only a short period of time.
The strategy is used for new products that offer something unique to consumers who are willing to pay high prices
Gradually the selling price is reduced to enable a wider market appeal
Penetration Pricing
The main aim of this strategy is to gain market share quickly by entering the market with a very low price.
This strategy encourages large volumes of sales and the aim is to generate brand loyalty.
As it becomes more established, then the prices are gradually raised.
Competitive pricing
New entrants into a market often have to follow the prices charged by the leading companies
Psychological Pricing
The main aim of this strategy is to match what consumers expect to pay. Consumers perceive that they are receiving value for price payed.
The policy of pricing goods below a round figure, such as £5.99, is also an example of psychological pricing. This is to make consumers believe they are getting value for money
Destroyer pricing
The main aim of this strategy is to set a deliberately low price to drive competitors out of the market.
This strategy is used by the larger established companies to force out new competitors.
Such as strategy is illegal.
Loss leader pricing
The main aim of this strategy is to sell certain items at a loss or low profit to attract customers and make extra profits on other full priced goods.
Cost-Based Pricing Strategies
Businesses which concentrate on internal costs when pricing products are known as product-orientated businesses. Pricing strategies used are based around the costs of production.
The two main pricing strategies of this approach are
Cost-Plus Pricing
Contribution Pricing
