Business – 3.3 The marketing mix – Pricing methods | e-Consult
3.3 The marketing mix – Pricing methods (1 questions)
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Model Answer
- Profit maximisation: Setting a price that yields the highest possible profit margin while covering costs.
- Market share growth: Using price to attract a larger proportion of customers, often by offering lower prices than rivals.
- Survival and cash‑flow management: In a highly competitive market, pricing may be set to ensure sufficient sales volume to cover fixed costs and maintain liquidity.
- Brand positioning: Prices can signal quality or prestige, influencing consumer perception.
In a competitive pricing strategy the firm sets its price primarily in relation to the prices of key rivals. This approach is useful because:
- It helps maintain market share when customers are price‑sensitive.
- It reduces the risk of a price war by aligning with industry norms.
- It provides a clear benchmark for pricing decisions, simplifying the pricing process.
- It can be combined with other objectives, such as achieving a target profit margin, by adding a fixed markup to the competitor‑based price.