Pricing Decisions & Pricing Skimming

• How many key factors influence business pricing decisions?

  14 key factors
• What are the internal factors affecting pricing decisions?

  Costs and product life cycle
• What are the external factors affecting pricing decisions?

  Nature of product and degree of competition
• Why do costs influence a business's pricing decisions?

  Businesses aim to make a profit
• How do a business's price and costs relate to profit?

  They determine how much profit is made
• What happens if a business sets a price lower than its costs?

  It cannot afford to operate profitably
• How does a product's position in the product life cycle affect pricing?

  It helps determine high or low pricing
• Why might businesses charge higher prices for new products?

  To take advantage of exclusivity
• In what two key ways does the nature of a product affect pricing?

  Luxury status and differentiation from competitors
• How does being a luxury good affect pricing?

  It allows for higher pricing
• How does product differentiation influence pricing?

  Similar products usually have similar prices
• How does the degree of competition affect pricing decisions?

  More competitors lead to lower prices
• What must businesses do when customers have many options?

  Compete using lower prices
• What is price skimming?

  A high initial price that lowers over time
• Why is price skimming often used before facing competition?

  To maximize revenue before competitors enter
• How does price skimming help maximize revenue?

  It attracts early buyers willing to pay more
• What fixed costs can price skimming help cover?

  Research and development costs
• What is a disadvantage of price skimming?

  It can slow down product sales growth
• How does slower unit sales growth affect competitors?

  It gives competitors more time to enter the market
• What is the impact of not maximizing sales at the start?

  Competitors can gain market entry opportunities