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3.3.2 Marketing Mix - Price (1. Pricing Methods (Cost Plus Pricing (…
3.3.2 Marketing Mix - Price
1. Pricing Methods
Reasons for using new pricing strategies
Break into a
new market
Increase
market share
Increase
profits
Ensure all
costs
are covered
Cost Plus Pricing
:pencil2: The
cost
of manufacturing the product + a
profit markup
:+1: Easy to apply
:-1: Could lose sales if selling price is higher than competitors'
Competitive Pricing
:pencil2: When the product is priced
in line/just below competitors'
prices.
:+1: Sales may be high as price level is realistic
:-1: Research required, costs time + money
1. Pricing Methods
Penetration Pricing
:pencil2: Price is set
lower
than
competitors'
prices to enter a new market
:+1: Ensures sales are made in the new market
:-1: Sold at a lower price, profit may be lower
Price Skimming
:pencil2: When a
high price
is set for a new product on the market
:+1: Could help establish it as being "good quality"
:-1: Sales may be lower due to high price
1. Pricing Methods
Promotional Pricing
:pencil2: Product is sold at a
very low price
for a
short
period of time.
:+1: Getting rid of unwanted stock
:+1: Renew interest in business if sales are falling
:-1: Lower sales revenue
2. Price Elasticity
Price Elastic Demand
% change in demand is
greater
than % change in price.
The product's demand changes depending on price
Often occurs w/ products that have substitutes e.g. chocolate
Price Inelastic Demand
% Change in demand is
less
than % change in price
The product's demand doesn't change depending on price
Often occurs w/ products that don't have substitutes e.g. petrol
:star: If product is
price elastic
, it isn't a good idea to increase prices (unless there are rising costs).
:pencil2: A measure of the responsiveness of
demand
to a
change in price