Business In the Real World PAPER 2

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12 Terms

1

What 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

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2

What is pricing low?

This is done to achieve a high volume of sales on products with low USP.

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3

What is pricing high?

Produces low volume of sales at a high profit margin often used when selling luxuries as brands are already established.

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4

Penetration Pricing

Setting a low price initially to attract customers often to a new product then increasing costs once aims have been reached.

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5

Price Skimming

Setting a high price initially and then lowering costs to attract price sensitive customers.

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6

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.

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7

Phycological Pricing

Makes customers believe they are paying less than what it really costs. Attracts customers looking for value.

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8

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.

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9

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

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10

Purpose of Boston Matrix

  • Analysis of product portfolio decisions

  • Doesn’t take into account environmental factors

  • Snapshot of the current position

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11

Cost Plus Pricing

Adding cost of making a product and adding on a percentage.

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12

Factors that influence price?

  • Costs

  • Demand

  • Degree of competition

  • Product life cycle

  • Brand image

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