1.3.3 (p.g 44)

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What do companies use price strategies for?
To evaluate business decisions based on the market and any possible financial consequences that may arise.
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What is price skimming?
This is when businesses charge a higher price on release of a product or when it is in the growth stage of the product life cycle.
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Why do companies do this?
It can allow companies to regain funds spent on R&D and production costs.
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What is the risk of price skimming?
If a business chooses to do this a rival company may release a similar product but at a lower price.
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What is price penetration?
This is when a business charges an very low price for their product or service. This is sometimes used on the launch of a new product as a way to grab consumer interest and quickly gain a large market share.
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What is competitive pricing?
This is when one company, which is usually the price leader will set a price for a product in which the rest of the market will follow. The 'price leader' is usually the company that has the largest market share.
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What does this help the 'price leader' do?
By setting the going rate, price leaders demonstrate their dominance and premium status. This can help them retain brand loyalty, as customers perceive them to be high standard.
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What type of PED will the price leader products have?
Will usually have a lower PED since customers will be more willing to tolerate price increases if they believe the product to be high quality.
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What are the 'price takers' in a market?
These are the businesses that follow the market price set by its leaders.
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What is price discrimination?
This involves a business charging different prices for different sections of the same market. e.g a cinema, businesses will manage their pricing depending on the time of day or target audience.
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What is cost plus pricing?
This is the method in which businesses take to determine how much to charge for their product.
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What is the equation for cost plus pricing?
(Total budgeted cost + markup) / Budgeted sales in units
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What are price tactics?
Short term price manipulations that companies use on a day to day basis to gain market advantage over their rivals.
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What are the main price tactics? (5)
Discounts, Special promotions, Loss leaders, Psychological pricing, Predatory pricing.
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What is meant by discounts?
Companies offer discounts for a short period of time as a way to stimulate demand for a product. e,g BOGOF
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What is special promotions?
Companies may choose this tactic when sales are in decline for an established products. They may offer 6 of the same products for the price of 4.
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What is meant by loss leaders?
This involves selling one product at a very low price in order to encourage consumers see what else is on offer.
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What is psychological pricing?
This is when companies alter the price by 1p (usually) in an attempt to make consumers think the product is cheaper than it actually is. e.g (£9.99) (£129.99)
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What is predatory pricing?
This is when a business will reduce their prices so low that it threatens to destroy all other competition and raises market's barriers to entry.However, this is usually on done by businesses that can afford it and can be a risk due to regulations.
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What are the main factors that influence pricing strategies? (7)
Competitors, Costs, Demand, Pricing objective, Target audience, Product life cycle, Marketing mix.
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Why are competitors important?
If the market is large, and there are a wide range of businesses all selling the same product businesses will have to evaluate how much rivals are selling their products for.
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How can businesses get the edge over rivals when selling the same product?
Low prices or a USP.
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Why is cost a factor?
Businesses need to decide on how cheap their manufacturing will be and how much profit they aim to make.
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Why is the product life cycle important?
If a products life cycle is short then the business will need to will need to sell prices fairly high and keep manufacturing costs low.
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What are the main changes in pricing to reflect social trends? (2)
Online sales, Price comparison sites.
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Why do online sales cause a change?
Products can often be found online for cheaper, and it is much more convenient for consumers to purchase online.
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Why do price comparison sites cause a change?
These allow consumers to compare prices of the same product/service between businesses to check mainly price, but other details as well depending on the product.
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Card 2

Front

What is price skimming?

Back

This is when businesses charge a higher price on release of a product or when it is in the growth stage of the product life cycle.

Card 3

Front

Why do companies do this?

Back

Preview of the front of card 3

Card 4

Front

What is the risk of price skimming?

Back

Preview of the front of card 4

Card 5

Front

What is price penetration?

Back

Preview of the front of card 5
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