Price Flashcards
All 8 cards in this deck
What is price skimming?
Setting a high price when a product is first launched. Used for new or innovative products with little competition.
What is price penetration?
Fixing a low price when a new product is first introduced. Used to attract customers quickly in a market with strong competition.
What is competitive pricing?
Setting the price of a product so that it is in line with competitors' prices.
What is a loss leader?
Selling a product below cost price to attract customers, in the hope they buy other, profitable products too.
What are the steps to set a price using cost-plus pricing?
e.g. a product costs £8 to make and the business adds a 50% mark-up
- Find the total cost per unit: £8
- Work out the mark-up: 50% of £8 = £4
- Add the mark-up to the cost to get the price: £12
Name four factors that influence a business's pricing decision.
Costs of production, the nature of the market, the degree of competition, and the stage of the product life cycle.
What is the basic relationship between price and demand?
As prices rise, demand is likely to fall; as prices fall, demand is likely to rise.
True or false? Cutting the price of a product always increases a business's total revenue.
False. Demand usually rises when price falls, but sales may not rise enough to make up for the lower price per unit.