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Price - Coggle Diagram
Price
Penetration Pricing
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Drawback: In the short term it will result in lower profits. It may be difficult to raise the selling price. Customers may switch to a rival when the price increases
A business charges a very low price when the product is introduced to get lots of people interested in it. When the product has been established, the business will increase the price.
Price Skimming
Involves setting a high price when the product is introduced to the market which will then be lowered later. There must be high demand for the products people want to be the first to own it. Results in high profits but not high numbers of sales.
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Drawbacks: Price skimming cannot last for long as competitors launch rival products. Growth in sales is slow because the product is expensive.
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Cost Plus Pricing
The business will charge a price based on the cost of making or buying the product. The cost will be calculated and then a mark-up will be added to arrive at the price charged.
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Drawbacks: Ignores prices charged by competitors. Does not take how popular the product is with customers.
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Premium Pricing
Where a business purposely sets a high price as this makes them seem exclusive and appealing. This strategy involves selling small quantities, the profit margin per product is very high.
Benefits: High profits margins are achieved. Builds the assumption of higher quality by charging more.
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Examples are luxury products such as designer clothing, luxury watches or high-end cars.
Competitive Pricing
Businesses will charge similar prices to their competitors. Businesses must then compete by using non-price competition such as high-quality products, advertising and branding.
Benefits: Selling prices will attract new customers. Businesses do not lose customers to their rivals.
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