Pricing Structures

• What is competitive pricing also referred to as?

  Status quo pricing
• What is the main strategy behind competitive pricing?


  The price of a product is set to match what a competitor is offering
• When might a company choose to set a higher price under competitive pricing?

  To create a higher-quality perception or to target a niche market
• How does setting the same price as competitors benefit a company?

  It allows the company to show more benefits for the same price
• Why would a company lower its price under competitive pricing?

  To try to gain a wider customer base
• What is premium pricing?

  A high price set to establish the product as exclusive and of high quality
• When is premium pricing typically used?

  When a substantial competitive advantage exists
• What types of products commonly use premium pricing?

  Luxuries such as premium ice cream or chocolates
• What is product line pricing?

  Pricing strategy that differentiates products in a line based on quality and features
• How does product line pricing promote purchase of line extensions?

  By creating different quality levels in the mind of consumers
• What is psychological pricing?

  A pricing strategy that aims to elicit an emotional response from consumers
• How might a company use psychological pricing to influence consumer perception?

  By making small changes to prices, such as pricing an item at $1.99 instead of $2.00
• What is value pricing?

  A pricing strategy that provides value products and services in response to external factors
• When might a company implement value pricing?

  During a recession or increased competition
• What is the primary goal of any pricing structure a business chooses?

  To cover costs and deliver a reasonable profit margin
• What factors should pricing match according to the study material?

  The image of the company and the needs and nature of the customers
• What are the different pricing strategies a company might use to maximize sales and profits?

  • Bundle Pricing: Group products sold at a reduced price
  • Captive Pricing: Low prices for main products, high for supporting products
  • Geographical Pricing: Price variations based on location
  • Optional Pricing: Adding optional extras to increase attractiveness
  • Penetration Pricing: Low initial price to build sales and market share
  • Price Skimming: High initial price for unique products
• What is bundle pricing?

  A strategy where a group of products is bundled together and sold at a reduced price
• How do supermarkets typically use bundle pricing?

  Through 'buy one get one free' offers
• What is captive pricing?

  A strategy where low prices are offered for main products and high prices for supporting products
• What is geographical pricing?

  A pricing strategy that sees variations in price based on location
• How might geographical pricing be affected?

  By availability or distribution costs
• What is optional pricing?

  A strategy where an optional extra item is added to increase a product's attractiveness
• How does optional pricing encourage customers to spend more?

  By offering additional items that enhance the main product
• What is penetration pricing?

  A pricing strategy where the price is set artificially low to build up sales and gain market share
• When is penetration pricing appropriate?

  For ME-TOO products
• What is price skimming?

  A strategy where the initial price is set high for a unique product
• Why might price skimming not be sustainable in a competitive market?

  Because the high price attracts new competitors, leading to a price drop
• When is price skimming typically used?

  When the product is new-to-the-world or a line extension with no competition