Business studies

pricing strategies

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  • Created by: sarah
  • Created on: 05-05-09 20:07

Pricing

Market Led

  • AKA competitive pricing
  • accepts the price of competitors and prices product just lower than it
  • this gains advantage over competitors
  • would operate in a market where there is strong competition

Cost based

  • finds price by adding total costs and profit and dividing it by the total sales
  • this way profit making is guaranteed
  • business needs to be aware of competitors
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Skimming

  • mostly used in the case of new products with little competition
  • sets high price at start to 'skim' the market
  • price is reduced when competition develop in order to maintain sales

Penetration

  • low price is set at start to gain entry to market
  • price is then increased when the place in the market has been secured
  • this method ensures sales although at beginning profits may be minimal
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Destruction

  • designed to destroy competitors sales
  • price is reduced to a very low price then when competitors have been driven out of the market the prices are raised again

Price wars

  • prices of some goods are lowered very low in order to secure sales
  • this is to attract customers to certain products
  • price wars can seriously cut profit if used for too long
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