Marketing AS Level-top 30 revison terms(4)

Predatory pricing:setting a price low enough to drive competitor out of the market,or out of business.This anti-competitive practice is hard to prove, though the pest control firm Rentokil has been warned by the Office of Fair Trading to stop doing it.Their tactic had been to target small but successful local competitor;whilst keeping their national prices high (thereby remaining profitable) they cut their local prices in a predatory manner.Once the competitor had withdrawn from the market, Rentokil 's prices were pushed back up.Carried out on a rolling basis around the country, this enable the firm to keep overall prices high, yet maintain their high market share.
Price discrimination:means charging different prices to different people for what is essen-tially the same product. This is done in order to maximise revenue by charging move to those that can afford, and are willing to pay, more. Price discrimination is a response to the recognition by a firm that different types of people may have different price elasticities of demand for a product.For example, under-16s get half-price entrance to most cinemas and football grounds because the owners know that higher prices will cut demand substantially.In this case, as in all considerations of price discrimination, it is essential that there should be the minimum of crossover between market segmants.In other words, if many adults could get in for half-price, the point of the discrimination would be lost.
Price elasticity:is a measure of the way the demand for a good responds to a change in its price. In order to avoid the problems with absolute numbers, it is always measured in pro-portionate or percentage terms, thus:
Formula:
Percentage change in quantity demanded
_____________________________
Percentage change in price

So if the price of the good rises by 10%, and its demand falls by 20% as a result, the value of price elasticity is:
20% : 10% = 2
A value greater than one is called price elastic, whilst a value of between zero and one is called price inelastic.In purely mathermatical terms, the value of price elasticity should be negative, since an increase in price will cut demand, and a fall in price will increase demand.Since this is always true, it is conventional to ignore the minus sign.
Pricing strategy:is the medium to long term plan of the price level that a firm wishes to set for a product. For a new product there are two fundamental strategies: market penetration (pricing low to maximise sales) or skimming the market (pricing high to maximise profit margins). A further possibillity for an existing product is price leadership.This is only feasible if the product in question has the dominant image within the mass market (examples would include Hellman's mayonnaise and L'Oreal hair products). There are many other ways in which a firm might determine the price of product:see pricing metheods.
Pricing tactics:ways of using price to take advantage of a short-term opportunity or threat.e.g.loss leaders,psychological pricing or predatory pricing.