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Some firms use reverse psychology and charge exact prices, e.g. selling good at £9.99 to make it appear cheaper. Setting price at important psychological levels to trigger purchase, e.g. Retail price mechanism RPM – when manufacturers set minimum prices for retailers, e.g.For example, Tesco is offering £10 voucher to customers who can prove their shopping basket would have been cheaper at other supermarkets. Very clear price matching stances can thus avoid price wars and give the impression of being very competitive. This is because they know there is little point in cutting prices because you will respond straight away. The argument is that this discourages your competitors from cutting price. The purpose behind price matching is making a promise to match any price cuts by your competitors. This involves setting an artificially high price to be able to later offer discounts on previously advertised price. There are different types of price discrimination from first degree to third degree. This involves charging a different price to different groups of consumers to take advantage of different elasticities of demand. However, it is illegal to sell goods below cost, so firms could be investigated by OFT. Loss Leaders This involves setting a low price on some products to entice customers into the shop where hopefully they will also buy other goods as well.This occurs when a firm makes a good more expensive to try and give the impression that it is better quality, e.g. Pricing strategies to attract customers / increase profit Some firms may have a target to increase market share, this could involve setting prices as low as they can afford, leading to a price war. This involves selling at a price equal to average cost. Aiming to maximise sales whilst making normal profit. In practice, it can be difficult to work this out precisely. In theory, this occurs at a price where MR=MC. One strategy is to ignore market share and try to work out the price for profit maximisation. A look at different pricing strategies a firm may use to try and increase profitability, market share and gain greater brand loyalty.
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