marketing mix and strategy: pricing strategies

pricing strategies

mthods used by a business when deciding what to charge for its products

uses of pricing strategies

achieve marketing and corporate objectives

increase market share

effectively compete in the market

cost plus pricing

add a percentage to the costs of producing a product to get the price

advantages of cost plus pricing as a pricing strategy cost-plus

• ensures all costs are covered

• easy to calculate

• economically sustainable

disadvantages of cost plus pricing as a pricing strategy

• ignores market conditions

• different prices to their competitors

• hard to identify all the costs associated

equation for calculating cost plus pricing

price = unit cost + mark up

price skimming/creaming

setting a high price initially and then lowering it later

advantages of price skimming as a pricing strategy

• generate high levels of revenue

• helps cover cost of market research

• makes the product seem prestigous

• establishes a new product

disadvantages of price skimming as a pricing strategy

• doesnt work in markets with large amounts of competition

• price needs to be justified

• high prices can deter consumers

• works for inelastic demand only

penetration pricing

setting a low price when lanching a products to get the product established in the market

advantages of penetration pricing as a pricing strategy

• succesfull with products aimed at lower socioeconomic groups

• increases the quanitity of sales

• fast growth

• allows them to exploit economies of scale

disadvantages of penetration pricing as a pricing strategy

• high risk

• unrealistic price expectations

• does not garantee customer loyalty

• product seems low quality

predatory pricing

setting a very low price when launching a products to establish it and make rivals exit a market

features of predatory pricing

• illegal in some countries as it causes a lack of competition in the market

• gets rivals to leave the market

advantages of predatory pricing as a pricing strategy

• eliminates competition

• restricts entry of new competition

• customer pay lower prices for products

Disadvantages of predatory pricing as a pricing strategy

• low profit margins

• considered illegal

• sudden price decrease drives out competition

competitive pricing

a pricing strategy based on the prices of the competitors so the prices are set simalarly to their competitors

advantages of competitive pricing as a pricing strategy

• low risk / safe

• allows price leadership

• cost effective

Disadvantages of competitive pricing as a pricing strategy

• can be inaccurate

• not all customers are willing to pay

• opportunity cost loss

psychological pricing

setting a price slightly below a round figure to make it appear cheaper than it actually is

advantages of psychological pricing as a pricing strategy

• discourages pricing

• grabs attention

• increases profit and revenue

Disadvantages of competitive pricing as a pricing strategy

• affect brand reputation

• no garantee of success

factors affecting the choice of pricing strategies

• differentiation in usp

• price elasticity of demand

• amount of competitors in the market

• strength of the brand

• stage in the PLC

• costs required to mke a profit

why does the differentiation of usp matter when choosing the pricing strategies

a strong USP leads to using price skimming

why does the price elasticity of demand matter when choosing the pricing strategies

leads to becoming a price leader and likely to use competitive pricing

why does the the amount of competition in the market matter when choosing the pricing strategies

high amounds of competition leads to predatory pricing or competitive pricing

why does strength of the brand matter when choosing the pricing strategies

a stronger brand can lead to price skimming

why does the stage in the PLC matter when choosing the pricing strategies

introduction: penetration

growth: using the same pricing streategy

maturity: psychological

decline: competitive/penetration

why do the costs required to make a profit matter when choosing the pricing strategies

because of the uncertainty in the market, high costs leads to costplus pricing

ways social trends replect changes in pricing

• online sales

• dynamic pricing

• auction sites

• price comparison sits

• personlised pricing

• subscription pricing

social trend: online sales

more businesses needs to adapt to online sales otherwise they wont be able to compete effectively in the market

social trend: dynamic pricing

changing the pricce based on external factors to maximise revenue

social trend: auction sites

offfers the best possible price however they requires a fee

create a sense of urgencu/ importance

trend: price comparison sites

retailers need to adjust their prices to remain competitive to reflect the rise in price comparison

used by a business to prevent losin customers

used to adjust prices automatically

social trend: personalised pricing

use of data relating to a specific online shooper to set a unique price for that shooper

can be enhanced by using third party cookies

social trend: subscription pricing

charging a regukar monthly fee to use a service or provide access to a specific product range