Pricing Strategies

Question 1

Cost plus pricing

Answer 1

It involves adding a mark-up to unit costs. The mark-up is usually a percentage of the unit cost.

Question 2

Price skimming

Answer 2

Some businesses may launch a product into a market charging a high price for a limited time period.

The aim of this strategy is to generate high levels of revenue with a new product before competitors arrive, and exploit the popularity of a new product while it is unique.

Question 3

Penetration pricing

Answer 3

Sometimes a business will introduce a new product
and charge a low price for a limited period.
The aim is to establish in the market.

Question 4

Competitive pricing

Answer 4

Set the price depending on competitors.
Used by businesses in competitive markets.
1. Price is set as competitors to avoid war price.
2.Dominating business sets the price and rest follow.

Question 5

Physiological pricing

Answer 5

One common pricing strategy is to set the price slightly below a round figure -
(99.99)

Question 6

Predatory pricing

Answer 6

It involves charging a very low price for a period of time until one or more rivals leave the market.
Aims to eliminate competitors from the market

Question 7

Factors that determine the price

Answer 7

-Differentiation and USP: A business can generally
charge a higher price fi its product has a U S or is sufficiently differentiated from those of its rivals. This is because many consumers are prepared to pay more.
-Price elasticity of demand: fI the demand for a firm’s products is price inelastic, there will be scope for price increases.
-Amount of competition: The amount of competition
in a market will have a big influence on pricing. fI there is very little competition in the market, a business can charge much higher prices because consumers cannot switch to a rival.

Costs and the need to make a profit: In the
long term, price must cover all the costs of production and generate a profit. This might explain why many businesses use cost plus pricing.