financial objectives
maximise profit
achieve a target level of profits
achieve a target rate of return
maximise sales revenue
improve cash flow
marketing objectives
maintain / improve market share
beat / prevent competition
increase sales
build a brand
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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
marketing objectives
maintain / improve market share
beat / prevent competition
increase sales
build a brand
cost plus
when a firm adds a percentage mark-up to the costs of making or buying a single product
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
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
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
competitive pricing
when businesses monitor their competitors prices to make sure that their own prices are equal or lower
psychological pricing
prices based of customers expectations
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
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
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
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
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
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
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