1.3.3 Pricing strategies

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financial objectives

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  • maximise profit

  • achieve a target level of profits

  • achieve a target rate of return

  • maximise sales revenue

  • improve cash flow

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marketing objectives

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  • maintain / improve market share

  • beat / prevent competition

  • increase sales

  • build a brand

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15 Terms

1
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financial objectives

  • maximise profit

  • achieve a target level of profits

  • achieve a target rate of return

  • maximise sales revenue

  • improve cash flow

2
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marketing objectives

  • maintain / improve market share

  • beat / prevent competition

  • increase sales

  • build a brand

3
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cost plus

when a firm adds a percentage mark-up to the costs of making or buying a single product

4
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price skimming

  • when (new and innovative) products are sold at high prices when they first reach the market

  • works well for products that create excitement - early adopters

  • prices are usually dropped considerably when the product has been on the market for a while

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price penetration

  • launching a product in at a low price in order to attract customers and gain market share

  • especially effective when the market is price sensitive e.g. washing powder

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predatory pricing

  • when businesses deliberately lower prices to force another business out of the market

  • once the competitor has gone it will raise prices again

  • it is illegal

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competitive pricing

  • when businesses monitor their competitors prices to make sure that their own prices are equal or lower

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psychological pricing

prices based of customers expectations

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factors that affect pricing decisions - number of USPs / differentiation

  • a product with a strong USP would be able to charge higher prices because it is highly differentiated from competitors

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factors that affect pricing decisions - price elasticity of demand

depends on the availability of substitutes, the type of product, whether its an expensive purchase, and the strength of the brand

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factors that affect pricing decisions - level of competition

  • if the price is set above that of competitor products without it being differentiated or having a USP, then there will be less sales

  • however is the price is too far below that of others, particularly strong brands, customers will question its quality

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factors that affect pricing decisions - stage in the product lifecycle

the stage of the product life cycle will affect the pricing strategy e.g. if sales are declining then the price may be reduced

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factors that affect pricing decisions - costs and need to make profit

  • price is often set to cover the cost of making the product / buying it from a wholesaler, and to make a profit

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changes in pricing to reflect social trends - online retailers

  • online retailers need to be more price competitive, as it is very easy for customers to compare prices for identical products

  • if there are many substitutes of a similar quality, the cheapest online seller will usually get the sale

  • online retailers may choose to compete with other aspects of final pricing such as offering free delivery or free return. these extra benefits may make the customer willing to pay a higher price for the product itself

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changes in pricing to reflect social trends - price comparison sites

  • price comparison sites make it even easier for customers to compare prices for a product between many different places

  • these sites are popular and save customers time and effort

  • the consequences for retailers is that they need to be very aware of the prices charge by competitors