IB Business and Management Marketing 4.4 PRICING STRATEGIES

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Cost-Based Pricing
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Setting prices based on the COSTS OF PRODUCTION rather than the level of demand or the prices set by competitors
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Cost-Plus Pricing
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Adding a fixed percentage or predetermined amount to the average cost of production to determine the selling price.
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Marginal-Cost Price HL
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Basing the price on the extra cost of making one additional unit of output
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Contribution-Cost Pricing HL
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Setting prices based on the variable costs of making a product in order to make a contribution towards fixed costs and profit.
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Full-Cost Pricing HL
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Require a business to allocate fixed costs between all the products that are sold
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Absorption-Cost Pricing HL
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Allocating all the overheads by departments. Setting a price by calculating a unit cost for the product (allocated fixed and variable costs) and then adding a fixed profit mark-up. (Full-Cost Pricing)
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Competition-Based Pricing
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A firm will base its price upon the price set by its competitors
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Price Leadership
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One dominant firm in a market sets a price and other firms simply charge a price based upon that set by the market leader.
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Predatory Pricing HL
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Deliberately undercutting competitors’ prices in order to try and force them out of the market
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Going-Rate Pricing HL
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The price charged is based upon a study of the conditions that prevail in a certain market and the prices charged by major competitors
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Market -Led Pricing Strategies
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Based on the level of demand for a firm’s products
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Penetration Pricing
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Setting a relatively low price often supported by a strong promotion in order to achieve a high volume of sales
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Skimming Pricing
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Setting a high price for a new product when a firm has a UNIQUE or HIGHLY DIFFERENTIATED product with low price elasticity of demand (Skimming). When other firms enter the market the firm will reduce gradually its price
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Price discrimination HL
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A pricing strategy that involves charging different prices to different groups of customers for the same product (e.g. child and adult fares at the cinema and on flights)
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Loss Leader HL
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A product is sold at a very low price to encourage consumers to buy other products
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Psychological Pricing HL
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Setting prices that take account of customers’ perception of value of the product. 9.99
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Promotional Pricing HL
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Special low prices to gain market share or sell off excess stock – includes ‘buy one get one free’

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