When do producers have a lot of influence over the price paid for their products
manufactured can easily be distinguished from other products in the market then it is probably a branded product
Ultimately a business can charge....
what it thinks its customers will pay
3 benefits of cost plus
• The method is easy to apply.
• Different profit mark-ups could be used in different markets.
• Each product earns a profit for the business.
what does competitive pricing involve
involves setting prices in line with your competitors' prices or just below their prices.
what is likely to happen to sales with competitive pricing
• Sales are likely to be high as the price is at a realistic level
and the product is not under- or over-priced.
• Avoids price competition, which can reduce profits for all businesses in the industry.
• Often used when it is difficult for consumers to tell the difference between the products of different businesses.
What does competitive pricing avoid
• If the costs of production for a business are higher than those of
competitors - perhaps because the product is of a higher quality -
then a competitive price could lead to losses being made.
• A higher quality product might need to be sold at a price above competitors' prices to give it a higher quality image.
• In order to decide what this price should be, detailed research would be needed into what prices competitors are charging, and this research costs time and money.
what might happen if costs of production are higher than the competitive price
If the costs of production for a business are higher than those of competitors - perhaps because the product is of a higher quality - then a competitive price could lead to losses being made.
what if the quality of the product is higher than competitors
A higher quality product might need to be sold at a price above competitors' prices to give it a higher quality image.
what is needed in order to decide what a competitive price should be
In order to decide what this price should be, detailed research would be needed into what prices competitors are charging, and this research costs time and money.
penetration pricing means...
Penetration pricing means the price would be set lower than the competitors' prices.
when is penetration often used
Often used for newly launched products to create an impact with customers.
what should build up quickly with penetration
market should build up quickly
products that use price skimming often have...
The product will often have cost a lot in research and development.
what will happen if skimming is used with a unique product and what will subsequently happen?
If the product is unique, a high price will lead to profits being made before competitors launch similar products - then the price will have to be reduced.
When is promotional pricing used?
Promotional pricing would be used when a business wants to price a product at a low price for a set amount of time to increase short-term sales.
2 advantages of promotional pricing
It is useful for getting rid of unwanted inventory that will not
It can help to renew interest in a product if sales are falling, for example during an economic recession.
what may a very high price for a very high quality product cause
A very high price for a high-quality product may mean that high- income customers wish to purchase it as a status symbol.
what can give the impression of good value for money
charge low prices for products purchased on a regular basis.
What prompts repeat sales
Repeat sales are often made when the price reinforces consumers' perceptions of the product
what prompts repeat sales of high priced products
Repeat sales are often made when the price reinforces consumers' perceptions of the product - this may be its brand image when the price is set high.
when customers are charged prices according to their ability to pay or the available supply of a product.
when can customers be charged different prices
when they can be spit into two or more groups of customers in the market
where can dynamic pricing be used and why
Dynamic pricing can also be used, often when products are sold 'online', to reflect rapid changes in the level of demand.
what affects how responsive customers are to changes in price
how many close substitutes there are.
the percentage change in quantity demanded is greater than the percentage change in price. Consumers are very sensitive to changes in price
When does a business need to monitor what its competitors charge
when they want to increase market share
4 reasons to adopt new pricing strategies
to try to break into a new market
to try to increase its market share
to try to increase its profits
to make sure all its costs are covered and a target profit is earned.
What will affect the price businesses choose?
What does not necessarily relate to the price?
cost of manufacturing
5 different pricing strategies
cost plus pricing
3 things cost plus involves
• estimating how many units of the product will be produced
• calculating the total cost of producing this output • adding a percentage mark-up for profit.
3 limitations of cost plus
• Businesses could lose sales if the selling price is higher than
• A total profit will only be made if sufficient units of the product are sold.
• There is no incentive to reduce costs - any increase in costs is just passed on to the customer as a higher price.
when is competitive pricing used?
a company needs to sell at a similar price to all the other brands available or consumers will buy the competitors' brands.
what might happen if customers get used to a penetration price
Customers might 'get used' to low prices and reject the product if the business starts to raise the price after the product's early success.
what should penetration ensure
It should ensure that sales are made and the new product enters the market successfully.
what may be low with penetration and why
The product is sold at a low price and therefore the profit per unit may be low.
what sort of product is penetration unsuitable for?
Might not be appropriate for a branded product with a reputation for quality.
when is price skimming used?
With price skimming, the product is usually a new invention, or a new development of an old product.
price skimming sells at what price
a high price
what can the skimming price indicate?
Skimming can help to establish the product as being of good quality.
2 disadvantages of price skimming
The high price may discourage some potential customers from buying
The high price and high profitability may encourage more competitors to enter the market.
2 limitations of promotional pricing
The revenue will be lower because the price of each item will be
It might lead to a price competition with competitors - so the business might have to reduce prices again.
what can create the impression of a cheaper price?
If a price for a product is set just below a whole number.
2 reasons for using a variety of pricing methods
maintain market share
why do businesses do dynamic pricing
Businesses do this because the price sensitivity of these groups is different.
what happens to price in relation to demand
If demand increases then the price will be raised, and at times of low demand the price will be reduced.
what is an ethical issue with dynamic pricing
because thanks to new technology firms can track the buying history of customers and then charge higher prices for products when they buy them online.
what happens if there are many substitutes and price rises a little
consumers may change to a different type of product
what may cause a product to be inelastic
there are not really any close substitutes for a product
when can a business raise prices
there are not really any close substitutes for a product