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11 Cards in this Set
- Front
- Back
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Price Skimming |
New and innovative products are sold at high prices when they are first sold on the market. Consumers are likely to pay more due to scarcity value, and the high price also boosts the product's image. Price dropped significantly after the first year or so as everyone who initially wanted the product have got it, and competitors are also likely to be on the market. Often used by technological and innovative firms such as Apple and RayBan Sunglasses. |
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Possible downside to price skimming |
Potential customers can be put off by the high price and customers who purchased the product at its original price may be frustrated when the price is lowered. |
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Penetration Pricing |
Product launched at low price to attract customers and gain market share. Effective in price sensitive markets such as food or washing power. Works best for companies benefitting from economies of scale. Can also be used as a product extension strategy or to target a budget-conscious market segment. |
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Possible downside to penetration pricing |
Customers expect the low price to continue so hard to raise price without losing sales and market share. Will also damage how the brand image is received. |
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Predatory Pricing |
Business deliberately lowers prices to force a competitor out of the market. This strategy is illegal under EU and US law. |
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Competitive Pricing |
Companies monitor competitor prices to ensure their own prices are at an equal or lower level. Some firms offer refunds on money saved shopping elsewhere, especially supermarkets. |
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Psychological Pricing |
Price based on customer expectations. A high price may cause a customer to think a product is of high quality. An insignificant price change can have a big psychological impact and increase sales, such as charging £99.99 instead of £100 for a product. |
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Loss Leaders |
Products sold at or below cost price. The business may not make profit on these items, but they may make profit indirectly as customers will likely buy other items at the same time. Works well in supermarkets where the loss leader can be advertised to entice customers into the shops. |
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Price Discrimination |
Company sells its products at different prices to different groups of consumers. For example, tickets to a concert may be more expensive for an adult than for a child. |
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Dynamic Pricing |
Aims to increase revenue by changing prices based on competitor prices and demand. If demand is high, prices rise and vice versa. Used for hotel rooms, airlines and rail tickets. Prices will often rise as the travel date draws nearer and will be higher at particular times on certain days. |
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Benefits of dynamic pricing |
Allows a firm to make increased profits at busy times, as well as offset costs of excess capacity during quiet periods (as well as increasing demand at these times). |
