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Chapter 37 Price Revision (Competition-based pricing (Businesses take a…
Chapter 37 Price Revision
Penetration pricing
Setting a low price to start with in order to get the product established. Then the price can be raised.
Mass markets: fast-moving consumer goods - confectionery, drinks etc.
The cost can be high
Cost-plus pricing
Simple
Adding a mark-up: percentage added to the costs that makes a profit for the business
Common with retailers
But it ignores the market conditions
Skimming
Setting the price high initially and lowering it later
To generate high levels of revenue
eg Apple
Some early adopters are willing to pay more money to get the product first.
Competition-based pricing
Businesses take a look at their rivals' prices
It can be used in very competitive markets
Destroyer or predatory pricing: setting a low price until rivals have gone out of the business
Price leadership: the market leader set the price and all others follow
It is considered a safe pricing strategy.
Promotional pricing
Price will be lower for a period of time
To get rid of old stock
To generate some cash quickly - improve cash flow
To generate renewed interest
To attempt to win a larger share of market
Approches
Discounts and sales
Loss leaders
Price lower than the cost
Psychological pricing
Set the price slightly below a round figure
e.g. $99.99 instead of $100