marketing mix: price

define cost plus pricing

the cost of manufacturing a product plus a profit mark-up

advantages of cost-plus pricing

easy to apply

different mark-ups can be used in different markets

ensures each product makes a profit for the business

disadvantages of cost-plus pricing

no incentive to reduce costs

loss of sales if price is higher than that of competitors

sufficient units must be sold in order to make a profit

define competitive pricing

is setting prices in line with or just below that of competitor’s to try and capture more of the market.

advantages of competitive pricing

sales are likely to be high coz price is realistic

avoids price competition (can 0 profits for everyone)

used when customers can’t differentiate between different business’s products

disadvantages of competitive pricing

COP may be higher than rivals (1 quality) so loss

higher quality products need higher prices to enforce brand image

research about competitor’s prices needs time and money

define penetration pricing

when prices are set lower than that of competitors in order to enter a new market

advantages of penetration pricing

used for newly launched products to create impact with customers

ensures sales are made and product enters market successfully

market share should build up quickly

disadvantages of penetration pricing

low profit per unit

customers get used to lower prices

not appropriate for branded products with a reputation for quality

define price skimming

a high price is set for a new product on the market

advantages of price skimming

establish that the product is of good quality

high R&D costs can be recouped quickly

high price=high profits before rivals launch similar products

disadvantages of price skimming

high price & profitability attracts new competitors

consumers may be discouraged from buying the product if price is too high

define promotional pricing

a product is sold at a very low price for a short period of time

advantages of promotional pricing

useful for getting rid of unwanted inventory

can renew interest if sales are falling

disadvantages of promotional pricing

low revenue

encourages price competition

define dynamic pricing

when businesses change product prices, usually when selling online depending on the level of demand