M Price

Question 1

Factors to consider when setting a price

Answer 1

• The quality of the product
• The demand for the product
• The costs of production
• The brand selling the product
• What competitors are pricing similar products

Question 2

Cost plus pricing

Answer 2

• Takes into account how much the product costs to produce then adds a percentage of that onto the price to ensure a profit
• Not very competitive

Question 3

Market skimming

Answer 3

• A company charges a higher price for a new and innovative product to skim the market of those who are willing to pay more to get the product first
• Once the novelty wears off, the product’s price will be reduced so the rest of the market will purchase it.

Question 4

Penetration pricing

Answer 4

• When a company first entering the market charges lower prices than the rest of their competitors to gain customers and become more popular
• One the product has gained a customer base, the price will be raised

Question 5

Discriminatory pricing

Answer 5

• Selling the same product to different people at different prices
• This ensures that sales are maximised and profits are maximised as they charge the most a certain group will pay for
• Eg, holidaymakers charge higher during school holidays
• Broadband providers charge new customers lower prices

Question 6

Destroyer pricing

Answer 6

• Illegal practise

- When a company charges very low prices, sometimes even at a loss to push competitors out of the market.

Question 7

Loss leaders

Answer 7

• Selling a product at a loss to entice consumers to buy other products that are more expensive
• Eg, razors are sold a cheap price to force customers to buy the expensive razor heads, where the profit is actually made

Question 8

Promotional pricing

Answer 8

• When a product is charged at a lower price for a specific amount of time to drum up attention and interest in the product.
• Can be used to boost sales or introduce a new product
• Eg 50% off

Question 9

Psychological pricing

Answer 9

-When a product is priced at a specific price such as £9.99 to make the consumer think they are paying less than what they actually are

Question 10

High (premium) price

Answer 10

• When a product is priced at a very high price to reflect its quality and give an impression of luxury
• Will attract customers who have high disposable incomes and want to buy luxury products
• Very high profit margins
• Will exclude consumers who can’t afford the product

Question 11

Low price

Answer 11

• When product is sold at below market price to sell higher quantities and attract customers
• Will attract customers who are looking for the cheapest product possible
• May give the impression of a low quality product

Question 12

Competitive pricing

Answer 12

• When the business prices their product very similarly to what their competition is pricing their’s
• Allows the business to compete in other areas such as quality, promotion, customer services.