Pricing Strategies

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  • Pricing Stategies
    • Cost Plus Pricing
      • Involves adding a markup to unit cost
        • Markup is usually a percentage of the unit cost
      • Drawback - It ignores market conditions. E.G the markup used may be far too high in relation to the price of rival products
      • Drawback - May be difficult to identify precisely all the costs associated with the production of a particualar product
    • Price Skimming
      • Launching a product into a market with a high price for a limited time period
        • The aim of this is to exploit the popularity of of a new product while it is unique and gain high amounts of revenue
      • E.G laptops when they were first introduced they were over £1000 however can now be purchased for less than £200
      • Advantage - High prices are charged in a amret where people are prepared to pay them. This helps maximise revenue. This revenue helps a business to recover the cost of R&D
    • Penetration Pricing
      • A product may launch into a market and charge a low price for a limited period
        • The aim of this is to get a foothold in the market and to attract customers which then continue buying when prices increase
      • Advantage - It can grow sales of new product lines very quickly
      • Advanatge - Fast grwoth in sales may allow a business to lower production costs by using economies of scale
      • Advanatge - Can put pressure on rivals. They may have to lower prices or try to differntiate their products
    • Predatory Pricing
      • It involves charging a very low price for a period of time until one or more rivals leave the market
        • Aim is to eliminate competitors from the market
          • Sometimes illegal if the selling price is below the cost of production with aim to force competitor out of the market
      • Sometimes illegal as it can lead to lack of competition in the market.
    • competitive pricing
      • Some businesses take a very close look at what their rivals are charging when setting their prices
        • One approach is charging the same price
          • Advantage of this is a price war is likely to be avoided.


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