Pricing Strategies Flashcards

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What is a pricing strategy?

A planned way a business sets prices to meet aims like profit, sales, or market share.

What is cost-plus pricing?

Setting the price by adding a fixed mark-up to the unit cost.

How do you work out a cost-plus price?

Find the unit cost, choose a mark-up, then add it to the cost. Example: unit cost £10 with 20% mark-up gives a £12 price.

What does mark-up mean in pricing?

The percentage or amount added to the unit cost to set the selling price.

What is competitive pricing?

Setting prices based on rivals' prices, often matching or slightly undercutting them.

When is competitive pricing most useful?

In markets with many similar products where customers compare prices closely.

What is price skimming?

Starting with a high price for a new or unique product, then lowering it over time.

Give one benefit of price skimming.

High early revenue can help cover research and development costs.

What is penetration pricing?

Setting a low price at launch to attract customers and enter the market fast.

Give one risk of penetration pricing.

Profit per unit is low, and customers may expect the low price to stay.

What is promotional pricing?

A temporary price cut, such as a sale or buy one get one free, to boost short-term sales.

Give one risk of promotional pricing.

It can harm profit and train customers to wait for deals.