Pricing Decisions & Pricing Penetration

• What is price penetration?

  Offering a low initial price to gain market share
• How do loss leaders work?

  They attract customers by selling at a loss
• Which company used price penetration with a new product?

  Apple with the Apple Watch
• What is the impact of price penetration on short-term profits?

  It can lead to lower average profits
• What is a loss leader?

  A product sold at a loss to attract customers
• What is the purpose of loss leaders?

  To attract new customers for additional purchases
• How did Dollar Shave Club use loss leaders?

  By delivering razors at a loss to attract customers
• What is price skimming?

  Setting a high initial price then lowering it
• What is cost-plus pricing?

  Charging based on production costs plus a markup
• How does a business determine the selling price using cost-plus pricing?

  By adding a markup to the production cost
• What example illustrates cost-plus pricing?

  Kwik Fit selling a Dunlop tyre for $100
• What is competitive pricing?

  Setting prices based on competitors' prices
• When is competitive pricing typically used?

  When products in a market are similar
• How did petrol stations in Derby use competitive pricing in February 2018?

  All charged 112.9p per litre of petrol