Price strategies
- Created by: Revisinggcse2020
- Created on: 21-10-19 13:13
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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
- Setting a high price before other competitors come into the market
- 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.
- To increase market share of a product
- 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.
- The main problem is that the business needs some other way to attract customers. It has to use non-price methods to compete
- 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.
- Customers may take the opportunity to 'bulk and buy'
- Product priced below cost-price in order to attract customers into a shop or online store
- 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
- The size of the profit margin may depend on factors
- Where a firm fixes the price for its product by adding a fixed percentage profit margin to the average cost of production.
- 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
- Price skimming
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