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what is pricing?
deciding the amount that is required as a payment or service
what are different pricing strategies?
loss leader, skimming, penetration, cost-plus, competitive
what is skimming?
when a product is priced high to begin with and is lowered once it has made lots of sales (apple phones, appliances etc)
what are the advantages of skimming?
very profitable, helps to cover the costs used on the r&d process
what are the disadvantages of skimming?
high prices may put customers off, customers may delay purchase until product is cheaper
what is cost-plus?
when a company works out the total cost to make the product and then the profit is added on top (food industry)
how can a business use cost-plus?
by adding a profit margin in £, by adding a % margin on top of the costs of making the product
what are the advantages of cost-plus?
helps the business to cover all costs, helps the business calculate their breakeven
what are the disadvantages of cost-plus?
difficult to be accurate with all costs, may have been able to charge a higher price than what they sold it for
what is penetration?
setting prices very low to begin with, then raising them once the product has made lots of sales (tv subscriptions, internet providers)
what are the advantages of penetration?
word of mouth recommendations spread quickly, business can establish a product quickly
what are the disadvantages of penetration?
low customer loyalty, price wars
what is competitive?
companies placed close together that are selling the same product in the market (petrol stations, fast foods chains)-customers will have to choose based on what is INSIDE the shop, as the price range will be very similar
what are the advantages of competitive?
prevents price wars, business knows costs are being covered
what are the disadvantages of competitive?
higher price may have been possible, causes shrinkflation
what is loss leader?
when a business sells a product/service at a price that is not profitable-allows the business to attract new customers to the shop (amazon, supermarkets)
what are the advantages of loss leader?
increase in sales, attracts new customers to the shop
what are the disadvantages of loss leader?
reduced profit margins, perception of poor quality due to low price
how does technology influence price?
production processes have become more efficient, more products can be produced in less time
what are the advantages of a business charging high prices?
can generate more gross profit, can allows a business to use good quality materials
what are the disadvantages of a business charging high prices?
customers may switch to cheaper rival products, reduces the competitive advantage for a business
how can competition influence price?
many business bring out the same products as each other with similar prices-they will have to differentiate on non-price factors (petrol stations having shops attached-the customer chooses the shop not the petrol station)
how do you work out the percentage reduction of a product?
new price-original price x 100
how can the introduction stage influence price?
business may start with a low price to encourage sales
how can the growth stage influence price?
business may offer small discounts/promotions
how can the maturity stage influence price?
business will keep prices high to gain more profit
how can the decline stage influence price?
business will heavily discount the product to get as much profit out of it as possible
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