Pricing strategies

View mindmap
  • Pricing strategies
    • Cost plus pricing
      • Add a mark-up to the unit cost
        • Easy way of ensuring that the pricing generates profit
        • Disadvantage: Ignores any changes in the conditions of the market
          • The price could be on high compared to rivals= low sales
    • Price skimming
      • Charging a high price when the product is first launched
        • High revenue before competitors arrive in the market
        • Exploits the popularity and uniqueness of the product- technical products
          • People are prepared to pay more, which maximises revenue- helps cover costs of R&D and helps elevate the image of the product
      • Disadvantage: it only works for inelastic products and it can attract competitors
    • Penetration pricing
      • low price is charged for a limited time on a new product
        • foothold in market- customer is attracted and will continue to buy when the price raises
        • middle or low income customers
        • fast growth of sales
          • low production costs(exploit economies of sales)
        • puts pressure on rivals=>lower prices or product differentiation(apply financial pressure)
      • D: low cost base; offer extended too long= customers won't pay new prices
    • Predatory pricing
      • eliminates competitors by charging really low prices
        • some forms are illegal because it can lead to lack of competition
          • the price will be raised beyond initial level
        • low-cost businesses
        • low profit margins for an extended period of time
    • Competitive pricing
      • competitive markets- mass markets
      • prices charged are set according to rivals
        • helps to avoid price wars- safe pricing strategy
        • price leadership= market leader sets price and others follow; dominant firm in market- strong brand
    • Psychologicalpricing
      • price is set slightly below a round figure e.g. 9.99 instead of 10.00
        • customers are tricked- product is cheaper
          • bargains
        • not used by businesses with up-market products
    • Factors
      • differentiation/ USP
      • PED
      • amount of competition
      • strength of brand
      • stage in product life cycle
      • cost and need to make profit


No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all Marketing and competitive environments resources »