Theme 2 - Pricing strategies

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  • Created by: becky.65
  • Created on: 20-05-17 13:05
What is a pricing strategy?
The way in which a business decides upon the price of its product or service
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What will the pricing strategy depend on?
How much competition will the business have; what competitive advantages will the product have; is the economy growing
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With a long established product, what will the pricing strategy depend on?
Its position in the market because if it is a market leader it will charge a high price and rely on brand loyalty to maintain sales
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With a new and unknown business, what does the price have to be?
It has to be competitive in order to establish a reputation
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What is cost-plus pricing?
The price is decided by adding a fixed percentage profit to the cost
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What is price skimming?
Charging a very high initial price for the product when the demand is high and people are willing to pay a high price to acquire the new product
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What is penetration pricing?
Setting a low price may persuade buyers to try the product; businesses may penetrate the market and gain market share
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What is premium pricing?
A higher price is charged than the competition because the product is seen as being more desirable; this works better for branded or innovative products
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What is predatory pricing?
Setting the price below the cost of production in an attempt to drive rivals out of the market; it is illegal in the UK
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What is competitive pricing?
Looking at the prices that your competitors are charging and making yours similar or slightly less; works in a very competitive market to increase market share
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What is psychological pricing?
When prices are rounded down slightly to make them sound more appealing to customers
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How does the number of USPs or amount of differentiation determine the most appropriate pricing strategy?
The higher the degree of differentiation, the higher the price so price skimming or premium pricing is used. Product that have little differentiation have to rely on competitive pricing
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How does the price elasticity of demand of a product determine the most appropriate pricing strategy?
Low PED will see premium price or skimming. High PED will require competitive pricing or undercutting
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How does the strength of the brand determine the most appropriate pricing strategy?
Strong brands have low PED therefore premium pricing or skimming are likely
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How does the stage in the product life cycle determine the most appropriate pricing strategy?
Introduction - penetration pricing if it has lots of competition or price skimming if it is completely new. Growth and maturity - competitive pricing. Decline - pricing may be reduced to keep sales going
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How does the need to make profit determine the most appropriate pricing strategy?
Cost-plus pricing may work for small businesses
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How have social trends intensified competition?
Information is easier to obtain through price comparison sites and most online retailers look to cut costs and operate efficiently rather than rising prices
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Other cards in this set

Card 2

Front

What will the pricing strategy depend on?

Back

How much competition will the business have; what competitive advantages will the product have; is the economy growing

Card 3

Front

With a long established product, what will the pricing strategy depend on?

Back

Preview of the front of card 3

Card 4

Front

With a new and unknown business, what does the price have to be?

Back

Preview of the front of card 4

Card 5

Front

What is cost-plus pricing?

Back

Preview of the front of card 5
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