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Flashcard Deck
Marketing Mix: Price
Study
1
Question
Penetration Pricing
Answer
Products are initially sold at a low price to break into the market and gain market share. Once a firm has enough market share, it can raise its prices.
2
Question
Advantages of Penetration Pricing
Answer
Suitable for mass market products sold in large volumes, New firms trying to enter established markets, Price advantages gained
3
Question
Disadvantages of Penetration Pricing
Answer
If price are too low, can cause customers to perceive it as inferior/low quality, No suitable for long term, If external costs rise = no longer profitable
4
Question
Cost-plus (mark-up pricing)
Answer
Finding out average cost per unit + % markup
5
Question
Advantages of Cost-Plus Pricing
Answer
Easy to calculate, Price covers costs, Suitable for any business, Suitable for when costs are rising, Suitable for when demand is high
6
Question
Disadvantages of Cost-Plus Pricing
Answer
Does not consider needs of customers, Ignores prices being charged by competitors, Few incentives to reduce costs, Does not focus on demand
7
Question
Loss Leader
Answer
Selling a product below its cost value to attract customers to the store and recoup loss by selling complementary products.
8
Question
What are the advantages of using a loss leader pricing strategy?
Answer
Suitable for low-cost products, Incentivizes customers to switch brands, Attracts customers, Benefits from higher sales revenue, Quick and effective way to clear out stock.
9
Question
What are the disadvantages of using a loss leader pricing strategy?
Answer
Customers might expect the business to continue offering loss leader products, Expensive to sustain, No guarantee that customers will buy other products, Can be regarded as anti-competitive and deemed unethical.
10
Question
Predatory Pricing
Answer
Temporarily reducing prices with the intention of forcing a competitor out of a market, typically used when an existing firm is threatened with new competition.
11
Question
What are the advantages of using predatory pricing?
Answer
Encourages customers to buy more, can be a barrier to entry for competition, and can inflict losses on competitors.
12
Question
What are the disadvantages of using predatory pricing?
Answer
It is anti-competitive, customers might doubt the quality of the product because of the low price, and it is likely to cause competition to reduce their prices in retaliation.
13
Question
Premium Pricing
Answer
The price of the product is set significantly higher than similar competing products, usually because the product is of higher quality or is unique enough to justify the premium price.
14
Question
Advantages of Premium Pricing
Answer
- Generates higher profit margins - Higher barrier to entry for competitors
15
Question
Disadvantages of Premium Pricing
Answer
- Limits customer base due to a relatively high price - May lose status if they appeal to the mass market - Requires strong brand loyalty, which is expensive to establish and maintain
16
Question
Dynamic Pricing
Answer
Changing the price of a good or service to reflect the changing market demand.
17
Question
Advantages of Dynamic Pricing
Answer
Helps maximize profits, Motivates businesses to provide better service, High price = high demand/low supply, Encourages service providers to provide more/better service, Allows customers to have more choice
18
Question
Disadvantages of Dynamic Pricing
Answer
Customers may feel unhappy, Associated with being unethical, Prices become inflated at high demand times, Can lead to price wars and predatory pricing, Time-consuming for customers to find the best price, High cost for businesses in analyzing data
19
Question
Competitive Pricing
Answer
When a firm sets the price of its goods or services at the same or similar level to its competitors. Used when a product has been on the market for a while, When there are many substitutes available
20
Question
Methods of Competitive Pricing
Answer
Pricing above the competition, Pricing same as the competition, Pricing below the competition
21
Question
Disadvantages of Competitive Pricing
Answer
Needs constant monitoring, May lead to price wars, Can reduce profit margins
22
Question
Advantages of Competitive Pricing
Answer
Simplistic and easy to calculate, Low-risk strategy, Flexibility
23
Question
What is Contribution Pricing?
Answer
Involves setting a price based on the fixed costs of producing a product.
24
Question
What are the advantages of Contribution Pricing?
Answer
Ensures selling price is high enough to cover both direct and indirect costs, enables determination of products generating the highest and least amount of total contribution, Easy to calculate, Know what to charge customers for a special or additional order.
25
Question
Disadvantages to Contribution Pricing
Answer
Indirect costs allocation can be subjective when dividing them among various products. Assumes the product's selling price remains consistent (due to economies of scale). Even if the selling price is stable, it's crucial for a business to monitor the prices set by its nearest competitors. Contribution pricing and analysis presume that manufacturers produce and sell the same number of units.
26
Question
What is the difference between Contribution Pricing and Cost-plus Pricing?
Answer
Cost-plus includes all costs (fixed + variable) and then adds markup, while Contribution Pricing only includes fixed costs.
Marketing Mix: Promotion
Study
1
Question
What are the objectives of promotion?
Answer
Persuasion, Inform, Differentiation, Devotion
2
Question
What is Above the Line (ATL) promotion?
Answer
Paid-for promotion through mass media sources
3
Question
What is Below the Line (BTL) promotion?
Answer
Non-mass media promotional activities with direct control
4
Question
Give examples of Below the Line (BTL) promotion methods.
Answer
Sales rep, in-person meetings, door-to-door salespeople
5
Question
What is Through the Line (TTL) promotion?
Answer
Involves both ATL and BTL
6
Question
What are the advantages of Television Advertising (ATL)?
Answer
Can be targeted to specific audiences
7
Question
What are the disadvantages of Television Advertising (ATL)?
Answer
Huge cost of production and advertising for a short time slot
8
Question
What is the advantage of Personal Selling (BTL)?
Answer
Improves customer satisfaction, builds trust, and builds brand awareness
9
Question
What are the disadvantages of Personal Selling (BTL)?
Answer
Labor-intensive, relatively expensive, salesperson training is time-consuming and expensive
10
Question
Name some examples of Direct Marketing (BTL).
Answer
Telemarketing, Email advertising, Direct mail by post
11
Question
What are the advantages of Direct Marketing (BTL)?
Answer
Can be targeted towards specific demographics, can be personalized, affordable for SMEs
12
Question
What are the disadvantages of Direct Marketing (BTL)?
Answer
Intrusive, low response rates, resource and financially expensive
13
Question
Give examples of Sales Promotions (BTL).
Answer
Buy one get one free, Discount vouchers, Free samples, Competitions for prizes
14
Question
What are the advantages of Sales Promotions (BTL)?
Answer
Clear excess inventory, improves customer involvement and loyalty, improves the company’s public image
15
Question
What are the disadvantages of Sales Promotions (BTL)?
Answer
Increased sensitivity to price, short-term solution, limits revenue
16
Question
Give examples of Point of Sales Promotion (POS) (BTL).
Answer
Supermarkets, Convenience store