1.3.3 pricing strategies.

What is cost plus pricing?

Cost plus pricing is a pricing strategy where business’ consider the cost of production then add a mark up percentage.

What is an advantage of cost plus pricing?

Cost plus pricing means that a business makes More revenue than the cost on each product - this means that they will make profit on each products sold and if they sell all of their products the business will likely have higher profit margins.

What is a disadvantage of cost plus pricing?

The price is based on the cost of the product not demand - may be higher than what customers are willing to pay - lower sales / revenue.

What is penetration pricing?

Where business’ originally set their prices low then increase over time.

What is an advantage of penetration pricing?

It allows business in a new market to gain more customers attention (some may try out due to cheaper prices) - this could lead to more loyal customers where demand doesn’t change when. prices go up.

What is a disadvantage of penetration pricing?

Penetration pricing may mean that customers only buy when the product is cheaper and when it gets more expensive they stop buying the product - this could lead to a loss of market share when the prices increase.

What is price skimming?

Starting prices high then lowering (usually tech brands - innovated products)

Advantage of pricing skimming?

some people will want the latest tech straight away (willing to pay premiums) - can cover R&D costs for that products and can put up profit margins for more innovation.

Disadvantages of price skimming?

If people think prices are too high at your business they may buy from competitors - can lose brand loyalty - rival business’ could gain market share.

What is predatory pricing?

Large business’ setting their prices much lower than competitors.

Advantage of predatory pricing?

people are more likely to pay for cheaper product - likely increase in market share and recommendations meaning that sales and revenues increase.

Disadvantages of predatory pricing?

It is illegal.

What is competitive pricing?

Setting prices similar to competitors - shifting consumers focus on who’s product has the best quality / marketing rather than price.

What are the advantages of competitive pricing?

Prices look. similar to other business - less risk of customers getting substitute products - can protect market share and increase sales potentially if the quality is better than the other business’ at a similar price.

What are the disadvantages of competitive pricing?

Each business keeps lowering price to stay competitive - can lead to a price war. This means business could be making low revenue compared to their costs lowering the profit margins.

What is psychological prices?

Setting prices to what consumers are willing to pay (what seems like a good price to them).

What are the advantages of psychological pricing?

Customers are more likely to purchase your product if they like your price this can lead to more recommendations and sales not only increasing brands image but also profit margins.

What are the disadvantages of Psychological pricing?

Consumers may not agree that the pricing set is reasonable - could lead to buying from cheaper competitors.