Pricing strategies
- Created by: alexialexi
- Created on: 17-12-20 13:33
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- 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
- Add a mark-up to the unit cost
- 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
- Charging a high price when the product is first launched
- 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
- low price is charged for a limited time on a new product
- 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
- some forms are illegal because it can lead to lack of competition
- eliminates competitors by charging really low prices
- 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
- customers are tricked- product is cheaper
- price is set slightly below a round figure e.g. 9.99 instead of 10.00
- Factors
- differentiation/ USP
- PED
- amount of competition
- strength of brand
- stage in product life cycle
- cost and need to make profit
- Cost plus pricing
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