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THE FOUR Ps
(PRICE) (PRICE SKIMMING (ADVANTAGES
• Consumers associate…
THE FOUR Ps
(PRICE)
PRICE SKIMMING
ADVANTAGES
• Consumers associate the high price with a high-value or high-quality product and an enhanced brand image.
• Firms are able to obtain initial high revenues that help in recovering their research and development costs.
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PSYCHOLOGICAL PRICING
ADVANTAGES
• The psychological effect of selling at a slightly lower price can obtain large revenues for a firm selling in large quantities.
• Suitable to apply in many market segments.
DISADVANTAGES
• Using prices such as US$199 or US$9.99 may be inconvenient for some business that require whole numbers in their transactions.
PRICE DISCRIMINATION
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DISADVANTAGES
• Businesses need to be certain about the type of elasticity of demand of their consumers.
THE LOSS LEADER
ADVANTAGES
• Business selling a large number of frequently purchased products may attract many customers and benefits from higher overall profits.
• May use loss leaders as a promotional strategy to encourage consumers to switch to their brand instead of buying the competitors’ brands.
DISADVANTAGES
• Firms using this strategy may be accused by competitors of undercutting them by using unfair business practices.
COST-PLUS PRICING
ADVANTAGES
• Simple and quick method of calculation the selling price of a product.
• Good way to ensure that a business covers its costs and makes profit.
DISADVANTAGES
• Fails to consider market needs or customer value when setting prices.
• Since competitors’ prices are not considered, a firm could lose sales if it sets a selling price that is higher than its competitors.
PENETRATION PRICING
ADVANTAGES
• As prices are low, consumers are encouraged to buy the products and leads to high sales volume and market shares.
• High sales volume can lead to decrease in costs of production and increase in stock turnover.
DISADVANTAGES
• Gaining high sales volume does not necessarily mean achieving high profits.
• Customers may perceive the product to be of low quality if the price is kept too low.
• Penetration pricing is only suitable for use in markets that are very price sensitive.
COMPETITIVE PRICING
ADVANTAGE
• Consumers benefit from the low prices, especially in very competitive markets.
• After using destroyer pricing, remaining dominant firms could gain higher sales revenue as a result of the higher prices charged.
DISADVANTAGES
• Predatory or destroyer pricing is a form if anti-competitive behaviour and is illegal in many countries because it is used to restrict competition.