Pricing strategies

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  • Created by: Ritika
  • Created on: 28-05-14 09:54

Cost plus pricing

Involves the business working out the cost of producing one unit of the product and the adding a % for profit.

 

E.g. cost of producing one toy is £6 and the mark up price is 200%, the £12 will be added on to the cost = £18.

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Contribution Pricing

Price is set to ensure variable costs of production are met. Any extra will be a contribution to the company’s fixed costs.

 

E.g. If variable cost of production for a doll is £12 and its sale price is £25, the contribution would be £13.  

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Price discrimination

Involves charging different prices to different groups of consumers for the same service.  

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Promotional pricing

Used by the supermarket sector, may involve a introductory offer or a special promotion.

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Psychological pricing

Using prices such as £9.99 to convince consumers they are paying less.

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price skimming

This is used mostly by the technological sector where they release a new console at a high price allowing them to recover their research and development costs. Consumers who wish to purchase it at a high price will do and then the firm will reduce the price to appeal to a mass market.

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penetration pricing

Involves introducing a product at a lower price and then later increasing it. Used to attract customers to convince them to buy the good.

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Loss Leading

 

Involves selling one good at a loss to encourage consumers into the shop which will lead to increase in sales for other goods.

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Predatory/destroyer pricing

 

May be used by larger firms to try to force smaller competitors out of business.

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