unit 13

• what is cost-plus pricing


  adding a profit mark-up to the cost of manufacturing
• what is competitive pricing


  when a product is priced in line with or just below competitor's prices to try to capture more of the market
• what is penetration pricing


  when the price is set lower than the competitor's price in order to enter a market
• what is price skimming


  setting a high price for a new product in the market
• what is promotional pricing


  when a product is sold at a very low price for a short period of time
• what is dynamic pricing


  when businesses change product prices depending on the level of demand
• what is price elastic demand


  where consumers are sensitive to changes in pricing
• what is price inelastic demand


  where consumers are not sensitive to changes in prices
• cost plus marketing helps with:

  • estimating the number of products needed to be produced
  • the total cost of production
  • adding up a percentage mark-up for profit
• advantage of cost-plus pricing

  • easy to apply
  • each product earns a profit
  • different profit mark-up could be used in different markets
  • most likely to have good sales
• disadvantages of cost-plus pricing

  • lose sales when selling price is higher than competitors
  • total profit made only if sufficient amount of products are sold
  • no encouragement to reduce cost
  • still need to find a way to attract customers
• advantages of competitive pricing

  • increasing sales (because prices are at reasonable levels)
  • price competition will be avoided, which reduces profit for all business in the industry
  • to show similarity between products of different businesses
• disadvantages of competitive pricing

  • higher cost of production leads to losses (since selling price will be low/in line with competitors)
  • high quality products needs to be sold at higher prices than competitors to give 'higher quality' image, but use this method then cannot
  • need to do research to know what prices the competitors are charging for, which costs time and money
• advantages of penetration pricing

  • creates impact with customers due to low pricing
  • ensures that sales are made and product enters the market
  • market share built up quickly
• disadvantages of penetration pricing

  • low prices, so profit per unit may be low
  • customers will be used to low prices, which may result in them rejecting a product if prices started to rise after product's early success
  • not appropriate for a branded product with a reputation of good quality
• advantages of price skimming

  • can establish the products as being in good quality
  • research and development cost can rapidly be covered from the profit made of the higher-priced products
  • when the unique product is launched first, high price will lead to higher profits
• disadvantages of price skimming

  • discourages potential customers from buying cuz it's expensive
  • encourages more competitors to enter the market
• advantages of promotional pricing

  • useful to get rid of unwanted inventory that won't sell
  • when the sales fall, it'll help renew interest in a product as the product is cheaper
• disadvantages of promotional pricing

  • low revenue due to price of each product will be reduced, leads to price competition as business might has to reduce prices again
• advantage of psychological pricing

  • high income customers will be willing to pay for the products at any pricing
  • the impression of pricing makes it look cheaper (example 9.99rm instead of 10rm)
  • supermarket charges low prices, giving customers the impression of being given a good value for money
  • repeat sales when prices reinforces consumer's preferences of product, which enhances brand image
• advantages of dynamic pricing

  • can be used in various businesses
  • can be used online to reflect rapid changes in demand levels
• disadvantages of dynamic pricing

  • when firms can track customer's buying history and then charging higher price for those purchases, it might cause ethical issues and customers might feel like it's unfair, especially those whose income is lower
• product demand responsiveness to price changes in influenced by the number of alternatives the customers can choose from


  when there is a high number of substitutes/alternative products for customers, it'll lead to larger percentage decrease in the original product's demand, this is called price elasticity
• price inelasticity

  • without close alternatives, if the prices increases, it won't significantly impact sales
  • most consumers will continue buying at the higher price
  • customers are not sensitive to price changes, they'll still buy