Price strategies

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  • Pricing strategies
    • Price skimming
      • Setting a high price before other competitors come into the market
        • Used for the launch of a new product with little competition
        • E.g. Sony PlayStation 3, iPad
        • This technique does not last long as competitors soon launch rival products which put pressure on the price
    • Price penetration
      • To increase market share of a product
        • Able to increase price once this objective has been achieved
      • It is setting a relatively low price; lower than intended established price to attract new customers.
        • Used to support the launch of a new product, works best when a product enters a market with relatively little product differentiation and where demand is price elastic.
    • Competitive pricing
      • "going-rate" pricing – i.e. setting a price that is in line with the prices charged by direct competitors.
      • An advantage of using competitive pricing is that selling prices should be line with rivals, so price should not be a competitive disadvantage
        • The main problem is that the business needs some other way to attract customers. It has to use non-price methods to compete
          • – e.g. providing distinct customer service or better availability.
    • Loss leader
      • Product priced below cost-price in order to attract customers into a shop or online store
        • Encourages customers to make further purchases of profitable goods while still at shops
        • Risks
          • Customers may take the opportunity to 'bulk and buy'
            • If the price discount is sufficiently cheap, then it makes sense for customers to buy as much as they can
            • Businesses can make a large loss
          • Using a loss leader is essentially a short-term pricing tactic for any one product.
            • Customers will soon get used to the tactic, so it makes sense to change the loss leader or its merchandising every so often.
    • Cost plus
      • Where a firm fixes the price for its product by adding a fixed percentage profit margin to the average cost of production.
        • The size of the profit margin may depend on factors
          • including competition and the strength of demand
    • Influences of using price strategies
      • People would be more influenced on buying the product or service
      • Encourages them to possibly share and advertise the product or service to their friends or family if the price is very good (using the pricing strategies)
      • more people would take action if they were to see the product on tv (or other places)
      • encourages businesses to possibly, reduce their prices as there would be more competition using pricing strategies.
    • EXT: Peak pricing
      • When a business raises its prices at a time when demand has reached a peak might be justified due to the higher marginal costs of supply at peak times


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