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Unit 1 - Pricing strategies :star: - Coggle Diagram
Unit 1 - Pricing strategies
:star:
cost plus pricing
= the cost pf manufacturing the product plus a profit mark-up
:check: each product earns a profit for the business
:red_cross: a total profit will only be made if sufficient units of the products are sold
:check: different profit mark-ups could be used in different mark ups
:red_cross: there is no incentive to reduce costs
Competitive pricing
= when the product is priced in line with or just below competitors' prices to try to capture more of the market
:check: often used when customers can't tell the different between similar products
:red_cross: cost time and money to research a 'competitive price'
:check: sales are likely to be high as the price is at a releastic level
:red_cross: a higher quality product should be sold at a higher price
Penetration pricing
= when the product is priced just below competitors price to try to enter the market
:check: market share should build up more quickly
:red_cross: products are sold at a low price so profits will also be low
:check: often used to launch new products
:red_cross: might not be suitable for a branded product with reputation
Price skimming
= where a high price is set for a new product on the market
:check: if the product is unique it will help the business generate more profits
:red_cross: may discourage potential buyers
:check: helps to establish the product as high quality
:red_cross: high price and high profits may encourage new competitors.
Predatory pricing
= setting a low price forcing rivals out of business
:check: minimises competition as it forces rivals out of business
:red_cross: illegal practice
:check: the pricing methods help the business to gain a dominant position in the market
:red_cross: not feasible in the long run
Factors determining pricing strategy
USP ( a business can generally charge a higher price if their product has a USP)
Price elasticity of demand ( if the demand for a firms product is price inelastic, there will be scope for price increases)
amount of competition (very little competition > can charge a higher price as consumers cant switch to rivals)
strength of the brand
stage in the product life cycle ( when a product is first launched, a business might use penetration pricing to get the product to enter the market)
costs and the need to make a profit ( in the long term, price must cover all the costs of production and generate profits)
Changes in prices to reflect social trends
online sales
dynamic pricing (maximize revenue and profits by filing capacity such as stadiums)
personalized pricing ( can charge higher prices to those customers who are prepared to pay more)
price comparison sites ( comparison sites are useful for consumers because they are able to find the cheapest deals available
subscription pricing ( involves charging customers a regular monthly fee for the use of a service or access to s specific product range.
auction sales ( sells goods to the customer who offers the highest price)