Price: Methods of Pricing Flashcards

All 9 cards in this deck

What is price skimming?

Setting a high price when a product is first launched, then lowering it once early demand has been met.

Why might a business use price skimming when it launches a product?

Any one of: early buyers who want something new will pay more; it brings in revenue quickly to cover development costs; a high price gives the product a premium image.

What is price penetration?

Setting a low price when a product enters the market to attract customers, then raising it once the product is established.

Why might a business use price penetration when it launches a product?

To encourage customers to try the product, so it builds sales and customers may keep buying it later.

What is cost-plus pricing?

Working out the cost of making each item and adding a percentage mark-up on top to set the price.

What is competitor pricing?

Setting a price in line with, or just below, the prices charged by competitors.

What is promotional pricing?

Temporarily lowering the price of a product to boost sales.

Give two factors that affect the price a business charges.

Any two of: competitors' prices; its costs and the profit it wants; whether customers know the business or brand; what customers are willing to pay.

Give one advantage of cost-plus pricing.

Each item sold covers its cost and earns a profit, as long as enough items are sold.