business unit 1 chapter: 12 pricing strategies

cost plus pricing

adds an amount of money to the cost of production to get the margin that the business wants

advantages and disadvantages of cost plus

+ simple

+ covers cost of production ensuring profit

+ eliminates uncertainty of what consumer is willing to pay

- doesn't consider competition

- doesn't take consumer willingness into account

price skimming

product is priced high to begin with as it has a desirability factor then price is reduced overtime

disadv and adv of skimming

adv - takes advantage of consumer willing to pay high, helps recover high R&D costs quickly, contributes exclusive image of product, works well with inelastic PED

disadv - can attract competitors to the market because seem to be profitable, early adopters may become unhappy when prices are decreased and stop shopping

penetration pricing

setting a low initial price in introductory stage and gradually raise price

adv and disadv for penteration

+good for launching new products
+promote fast sales growth
+ pressure on competition

-requires precise cost knowledge
-customers might react badly at price increase
-requires constant competition monitoring

predatory pricing

setting prices below cost and extremely low to eliminate competition

adv and disadv of predatory

adv - can promote quick sales growth for dominant business, good Strat to sell stock, promote dominant market position

disadv - illegal because limits competition in the market, not feasible in the long-run (expensive for business)

competitive pricing

pricing products and services in line with competitors

disadv and adv of comp

+relatively simple to implement
+relatively low-risk

-no differentiation
-no consideration of cost
-requires constant market reserach

psychological pricing

pricing strat that uses attractive terminations and specific numbers to influence consumer habits and purchasing decision

adv and disadv of psychological

+helps generate sales
+gets consumer attention very attractive

-can promote impulse buying and be deceptive for consumer
-potential damage to brand image and reputation