Business Studies - Topic 13

Cost-plus pricing

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

Competitive pricing

When the product is placed in line with or just below competitors prices to try to capture more of the market

Penetration pricing

When the price is set lower than the competitors prices in order to be able to enter a new market

Promotional pricing

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

Dynamic pricing

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

Price elastic demand

One consumers are very sensitive to changes in price

Price inelastic demand

When consumers are not very sensitive to changes in price.

Price skimming

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

What are advantages of cost plus pricing?

• Easy to apply

• Each product earns a profit for the business

What are disadvantages of cost plus pricing?

• Lose sales

• Difficulties on profit made

What are advantages of competitive pricing?

• High sales

• Avoid price competition

• Customer conveniences

What are the disadvantages of competitive pricing?

Higher production cost

Higher quality product

Expensive market research

What are advantages of penetration pricing?

Launch impact

Successful entry - ensure initial sales

Market share growth

What are disadvantages of penetration pricing?

Low profit

Customer expectations

Brand impact

What are advantages of price skimming?

Quality perception

Cost recovery

Competitive edge

Limitations

Competition risk

Customer impact due to high price

What are advantages of promotional pricing?

Clears extra stock

Revive sales

What are disadvantages of promotional pricing?

Lower revenue

Price competition, which may force further cuts