Pricing Strategies

Question 1

Factors affecting pricing decisions

Answer 1

• All the other P’s in marketing mix. E.g. heavy promotion of product, price may be reduced
• Price often set to cover cost of making the product, and to make profit
• Acceptable to customers - depends how price sensitive target audience is
• PED
• Stage of life cycle- if sales declining price may be reduced
• Level of competition
• If it has a strong USP, if so price will be higher

Question 2

What’s the 6 different types of pricing strategies

Answer 2

1) Price skimming
2) Penetration pricing
3) Competitive pricing
4) Cost-plus pricing
5) Predatory pricing
6) Psychological pricing

Question 3

What’s the 2 promotional pricing strategies for new products

Answer 3

Price skimming and penetration pricing

Question 4

What’s Price skimming

Answer 4

When new products are sold at high prices when they first reach the market, then is decreased considerably over the years

• consumers will pay more as the product has scarcity value
• high price boosts products image and increases its appeal
• price skimming is used as a long term strategy to keep brands more exclusive
• However potential customers can be put off by initial price and customers who bought product at initial price may get frustrated when price drops

Question 5

What’s penetration pricing

Answer 5

Launching a product at a low price in order to attract customers and gain market share

• Effective in a price sensitive market
• Works best for businesses who benefit from lower costs when manufacturing large quantities of a product
• Customers May expect low prices to continue, so difficult to raise prices without losing customers
• Can be used to extend product life cycle

Question 6

What’s cost-plus pricing

Answer 6

When a firm adds a percentage mark-up to the costs of making or buying a single product (the unit cost)

Price= unit cost + (unit cost/100 X mark-up)

E.g. products unit cost is £30 and business wants a mark-up of 25%, it’ll price it at £37.50

Question 7

What’s predatory pricing

Answer 7

When a business deliberately lowers prices to force another business out of the market

Question 8

What’s competitive pricing

Answer 8

When businesses monitor their competitors’ prices to make sure their own prices are set at an equal or lower level

Question 9

What’s psychological pricing

Answer 9

Bases the prices on customers’ expectations.

E.g. a high price may make people think product is high quality. An insignificant price change can have a big impact on the customer. E.g. £99.99 seems better than £100

Question 10

Increasingly amount of customers are using online retailers

Why do online retailers affect pricing strategies

Answer 10

• Online retailers need to be more price competitive, as it’s very easy for customers to compare prices for products. The cheapest online retailer will usually achieve the sale
• Online retailers may choose to compete with other aspects like free delivery or free returns which affect the final price for the customer. These benefits may make it more likely a customer will pay a higher price

Question 11

Increasingly amount of customers are using price comparison sites

Why do price comparison sites affect pricing strategies

Answer 11

• Price comparison sites make it even easier for customers to compare prices for a product
• These sites save customers time and effort in search for lowest price
• Therefore, competitive pricing strategy is important to achieve sales