Business studies

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

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

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