Pricing

Question 1

What are the types of pricing strategies?

Answer 1

• Cost plus (mark-up on unit cost)
• Price skimming
• Penetration
• Predatory
• Competitive
• Psychological

Question 2

What factors determine the most appropriate pricing strategy?

Answer 2

• Number of USPs/amount of differentiation
• Price elasticity of demand
• Level of competition in the business environment
• Strength of brand
• Stage in the product life cycle
• Costs and the need to make a profit

Question 3

What changes in pricing reflect social trends?

Answer 3

• Online sales
• Price comparison sites

Question 4

What is cost-plus pricing?

Answer 4

Adding a fixed percentage (mark-up) to the unit cost of production to ensure a profit is made.

Question 5

What is price skimming?

Answer 5

Setting a high initial price when launching a new/innovative product, then lowering it over time as competition enters.

Question 6

What is penetration pricing?

Answer 6

Setting a low initial price to attract customers and quickly gain market share, then raising it once loyalty is established.

Question 7

What is predatory pricing?

Answer 7

Setting very low prices (sometimes below cost) to force competitors out of the market. Often illegal if proven.

Question 8

What is competitive pricing?

Answer 8

Setting prices based on what competitors are charging, often to remain competitive in saturated markets.

Question 9

What is psychological pricing?

Answer 9

Setting prices that appeal to customers emotionally rather than logically, e.g. £9.99 instead of £10.