Pricing Strategies (1.3.3) Flashcards
(21 cards)
How many different Pricing Strategies are there and What are there names?
6 pricing Strategies
-Price Skimming
-Penetration Pricing
-Cost-Plus Pricing
-Phycological Pricing
-Competitive Pricing
-Predatory Pricing
What is Price Skimming?
Hight initial price then lowered (e.g Apple) This high price helps the business recover its development and management costs quickly
What is Penetration Pricing?
Low initial Price then raised (e.g. Netflix) This is effective when a business wants to quickly capture market share. Once they have enough customers, the business will start to raise the price
What is Cost-Plus Pricing?
Adding on a % Mark-Up. Business calculates cost of production and adds markup to determine final price. Markup covers cots of production + businesses desired profit margin
What is the Definition for Profit Margin?
The Difference Between your selling price and the cost of producing that unit.
What is Phycological Pricing?
Priced to make Customers think its Cheaper e.g. £299 instead of £300. Takes into account customer’s emotions, beliefs, and attitudes towards product/service
What is Competitive Pricing?
Same Price or lower than competition. Business sets its prices based on its competitors’ prices. This is effective when a business wants to maintain its market share in a highly competitive market. Business must continuously monitor and adjust prices according to competition.
What is Predatory Pricing?
Business sets prices so low that it drives competitors out of the market. This is illegal in many countries as its considered anti-competitive and harms customer by reducing choice in the market
Factors considered when choosing a pricing strategy (5 Factors)
- Product Differentiation (Can charge higher prices with high differentiation)
- Strength of the Brand (loyal customer base= higher prices)
- Amount of Competition (if lots of comp prices need to be lower)
- Stage of the Product Life Cycle (in intro stage prices need to be low to attract, in growth prices can increase in maturity prices need to be low again)
- Cost of Production ( cost of production provide reasonable profit margin)
- PED (lower prices if price elastic and higher prices if price inelastic)
What are the Advantages of Price Skimming?
(4 Advantages)
-Allows you to cover R + D costs quickly
-Creates Higher-end brand image and increases customer loyalty
-Segments the Market and targets different customers and different price levels
-General Word-of-Mouth Marketing from early adopters.
What are the Disadvantages of Price Skimming?
(3 Disadvantages)
-May reduce number of potential customers who are willing to buy product at high price
-May damage Brand Loyalty of early adopters who feel cheated when price drops later
-May attract competitors who can offer similar products at lower prices
What are the Advantages of Penetration Pricing?
(5 Advantages)
-Increased Customer Interest
-Reduced Competition
-More Brand Loyalty
-Increased Market Share
-Quick adoption and diffusion of the Product or Service
What are the Disadvantages of Price Skimming?
(3 Disadvantages)
-Increase likelihood of price war with competitors
-Concrete Pricing expectations among competitors who may not be willing to pay higher prices
-Customers may associate low prices with low quality
What are the Advantages of Cost-Plus Pricing?
( 5 Advantages)
-Utilize Minimal Resources
-Helps cover costs
-Easy to understand
-Requires minimal external data
-Contributes to price stability
What are the Advantages of Cost-Plus Pricing?
( 5 Advantages)
-Risk the consumers not valuing product at set price
-Inflexibility and inability to respond to consumer demand trends
-Limits Revenue growth through expansion
-Difficulty in accurately estimating costs
-Doesn’t take into account customer Demand or competitor Prices. Both which have significant Impact
What are the Advantages of Phycological Pricing?
( 5 Advantages)
- Discourages Competition from rival companies
-Drives greater attention to product
-Attracts new buyers to the product
-Offers transparency about all costs
-Simplifies decision- making process for consumers
What are the Disadvantages of Phycological Pricing?
( 5 Disadvantages)
-Requires optimal conditions for success
-Creates certain expectations of company
-Affects Brand Reputation
-uses Constant attention
-Offers no guarantee of success
What are the Advantages of Competitive Pricing?
( 5 Advantages)
-Easy and simple to implement
-Reduces risk of losing customers or Revenue
-Leads to lower prices, Higher Quality and more variety
-Can be combined with other pricing stratergies or discount tactics
-Can increase profit margins, Loyalty and Brand reputation
What are the Disadvantages of Competitive Pricing?
( 5 Disadvantages)
-Compromised product quality due to cutting costs in manufacturing process
-Risk for small businesses because often cant compete with large-scale businesses
-Inaccuracy in estimating product values
-Lack of focus on Customer
-Potential Lots of Revenue
In launching a new product with a strong brand identity what is the best pricing strategy?
Price skimming strategy to recover R+D costs
Why must retailers continuously adapt?
They need to adapt continuously to remain competitive in the market.
