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Business Chapter 13: The marketing mix = price (Pricing strategies (to try…
Business Chapter 13: The marketing mix = price
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 costs are covered
to make sure target profit is earned
The main methods of pricing
cost-plus pricing
involves
estimate how many units of product to produce
calculate the total cost of producing output
adding percentage mark-up for profit
benefits
each product earns profit for business
method is easy to apply
different profit mark-ups could be used in different markets
limitations
no incentive to reduce costs
businesses could lose sales if selling price higher than competitors'
total profit will only be made if sufficient units sold
to cover costs and ensure a certain profit is made
competitive pricing
benefits
sales likely to be high as price is at realistic level
avoids price competition
often used when it's difficult for consumers to tell difference between other businesses' products
limitations
could lead to losses being made
higher quality product might need to be sold
detailed research needed costs time and money
to maintain market share
The main methods of pricing
penetration pricing
benefits
used for new products to create impact with customers
ensure sales are made
ensures new products enter markets successfully
market share should builds up quickly
limitations
product sold at low price
profit per unit may be low
customers might get used to low prices
might not be appropriate for branded product with reputation for quality
to enter new markets
price skimming
benefits
skimming can help to establish good quality product
high research and development
limitations
high price may discourage potential customers from buying
may encourage more competitors to enter market
to make high profit and recoup research and develop costs
promotional pricing
benefits
useful for getting rid of unwanted inventory
can help renew interest if sales are falling
limitations
revenue will be lower because price reduced
might lead to price competition with competitors
to increase sales
Impact of psychology on price decisions
consumers' perceptions
high price products mean high-income customers
if price is lower, it gives impression of it being cheaper
charge low prices which gives impression if good value given
repeat sales made when price reinforces consumers' perception
Different pricing methods
dynamic pricing
products sold online to reflect rapid changes in the level of demand