Studied by 3 peopleWhat does a business need to consider when setting a price?
Cost of making the product : If price is greater than unit cost will ensure profitability
Quality of the product
Brand image of product : Requires high level of marketing activity
Demand and supply of a product : Charging higher for popular products
What is pricing low?
This is done to achieve a high volume of sales on products with low USP.
What is pricing high?
Produces low volume of sales at a high profit margin often used when selling luxuries as brands are already established.
Penetration Pricing
Setting a low price initially to attract customers often to a new product then increasing costs once aims have been reached.
Price Skimming
Setting a high price initially and then lowering costs to attract price sensitive customers.
Loss Leader
A product is sold at a loss (no profit made) to bring customers to a business in hopes they will purchase other higher profit items.
Phycological Pricing
Makes customers believe they are paying less than what it really costs. Attracts customers looking for value.
Competitor Based Pricing
Business aligns its cost with other competitors in the market, however have to also use non-price methods to attract and retain customers.
Boston Matrix
Cash Cow : The section of a products lifespan here it is established and profitable
Dogs : Low growth, low market share
Problem Child : High growth, low market share, cash absorbing
Stars : Need heavy investment to sustain growth but it will slow down and they will become cash cows
Purpose of Boston Matrix
Analysis of product portfolio decisions
Doesn’t take into account environmental factors
Snapshot of the current position
Cost Plus Pricing
Adding cost of making a product and adding on a percentage.
Factors that influence price?
Costs
Demand
Degree of competition
Product life cycle
Brand image
Note
Flashcard