43. price

Factors influencing price

• demand

• Image of quality

• Indirect costs

• Cost of raw materials

• Elasticity

• Competitors pricing

Problems of setting the price too low?

• low profit

• Quality expectations

• Brand image may be damaged

Problems of setting the price too high?

• quality demands (product must justify price)

• Determine demand

What are price takers

Firms will have to accept the price determined by the market

What are price makers

Have the opportunity of using pricing strategies to decide price

What is market skimming and positive and negative

High price at launch then reduced later e.g. iPhone

+ high profit when most popular

- limits customers in early stages

What is price penetration and positives and negatives

Low price at launch then increases later e.g. subscriptions

+encourages more sales, helps establish brand loyalty

-might not retain customers in long run, may create image of lower quality

What is going rate and positives and negatives

Price in line with other competition e.g. compare the market

+avoids lost revenue through price wars

-no flexibility to set own price

What is price discrimination

Different prices for the same product

What is loss leader

Making a loss on one product to encourage sales of others

What is price leadership

Dominant business sets the price for others in the market

What is psychological pricing

E.g. 99p rather than £1 - seems cheaper for customers

What is customer value

What customers are willing to pay

What is product orientated - cost plus

Calculating the average cost of producing the good and adding a mark-up for profit

Advantages and disadvantages of cost plus - product orientated

Ad-

• quick and simple way of setting a selling price `

• Ensures revenue will cover the cost

Dis-

• doesn’t take in to account market conditions or competitors

• Doesn’t consider fixed costs

What is product orientated - full costs

When a business attempts to not only cover costs of production of the products but also the fixed costs they base to pay

Advantages and disadvantages of full costs - product orientated

Ad-

• Considers direct and indirect costs

• All costs are covered - profit

Dis-

• trying to fairly allocate indirect costs can be difficult

• Final price may not be suitable for the market

What is product orientated- contribution

Takes direct production costs and adds on a contribution towards indirect costs each products selling price would make some contribution yo meeting indirect costs (fixed costs)