Pricing Strategies
- Created by: nathanking101
- Created on: 15-04-16 13:19
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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
- Involves adding a markup to unit cost
- 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
- Launching a product into a market with a high price for a limited time period
- 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
- A product may launch into a market and charge a low price for a limited period
- 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
- Aim is to eliminate competitors from the market
- Sometimes illegal as it can lead to lack of competition in the market.
- It involves charging a very low price for a period of time until one or more rivals leave 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.
- One approach is charging the same price
- Some businesses take a very close look at what their rivals are charging when setting their prices
- Cost Plus Pricing
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