- Price refers to :: the amount of money a customer is prepared to offer in exchange for a product
- Businesses often have difficulties setting
Pricing methods
Cost-based pricing:
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is :
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A pricing method derived from the cost of producing or purchasing the product and then adding a mark-up
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a mark-up is :: a predetermined amount (often expressed as a %) that a business adds to the cost of a product to determine its basic price.
Market-based pricing:
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A pricing method that sets the price according to the interaction between the levels of supply and demand
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supply is :: the quantity of a product businesses are willing to offer for sale at a particular price.
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demand is : the quantity of a product consumers are willing to purchase at a particular price.
Competition-based pricing:
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A pricing method where the price covers production costs and is comparable to its competitors.
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A price leader is :: a major business in an industry whose pricing decisions heavily influence the pricing decisions of its competitors.
Pricing strategies
Price skimming:
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- When business charges the highest possible price for a product during its introduction
- consumers willing to pay the higher price because of the novelty
Price penetration:
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- Occurs when the business charges lowest possible price for a product so they can achieve large market share in the short-term
- objective is to sell a large number of products during the early stage of the product life cycle in order to discourage competitors from entering the market.
- However, it’s difficult to raise prices once the low prior price has been established
Loss leaders:
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- Occurs when the product is sold at or below its cost price.
- once customers are in the store they will usually buy extra products and spend more than what attracted them.
- businesses can recover losses from low prices items through additional sales of higher priced items
- risky if done incorrectly
Price points (or price lining):
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- Occurs when the business sells products at a predetermined price
- often employed by retailers
- e.g. a jeweller having a line of watches priced: 75, $95
- easier for the customer to find the type of product they need
- easier for the business to encourage customers to ‘trade up’ more expensive models
- ==A ‘PRICE LADDER’== ← APPLE AS KEY EXAMPLE
Price and quality interaction
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The perceived price-quality relationship helps determine the image customers have for products.
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Prestige or premium pricing is
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a pricing strategy where a high price is charged to give the product an aura of quality and prestige
- based on the tendency for consumers to assure expensive products are superior for their priced.