Marketing

Table of Contents

1. Topic pack - Marketing - introduction
2. 4.1 The role of marketing - notes
3. 4.1 The role of marketing - questions
4. 4.2 Marketing Planning - notes
5. 4.2 Marketing planning - questions
6. 4.3 Product introduction - notes
7. 4.3 Product - questions
8. 4.3 Product - simulations and activities
9. 4.4 Price - notes
   1. Price
   2. Summary of pricing strategies - SL
   3. Summary of pricing strategies - HL
   4. Cost-based strategies
   5. Cost-plus pricing (mark-up pricing)
   6. Marginal cost pricing
   7. Pricing - Contribution pricing
   8. Pricing - Absorption cost and full cost pricing
   9. Competition-based pricing
   10. Price leadership
   11. Predatory pricing
   12. Going rate pricing
   13. Market-based pricing
   14. Penetration pricing
   15. Skimming pricing
   16. Price discrimination
   17. Loss leader
   18. Psychological pricing
   19. Promotional pricing
   20. Supply and demand
   21. Elasticity
   22. Elasticity and sales revenue
   23. Price elasticity and the product life cycle
   24. Income elasticity of demand (YED)
   25. Cross elasticity of demand (XED)
   26. Advertising elasticity of demand (AED)
10. 4.4 Price - questions
11. 4.4 Price - simulations and activities
12. 4.4 Promotion - notes
13. 4.5 Promotion - questions
14. 4.6 Place (distribution) - notes
15. 4.7 International marketing - notes
16. 4.7 International marketing - questions
17. 4.8 E-commerce - notes
18. 4.8 E-commerce - questions
19. Printable version

Predatory pricing

Predatory pricing takes place when a deliberately low price is charged in an attempt to lever out some of a firm's competitors from the market. When aggressive price cutting is used to deter competitors or to try to push competitors out of the market, this approach is known as destroyer pricing. The aim is purely and simply to 'destroy' the competition. Normally the price reduction is temporary, because the low price may not be profitable. This strategy may be perceived as anti-competitive by the government regulators.

Another strategy that might be used is deterrent pricing, which is where a company keeps its prices as low as possible as a barrier to entry. Potential rivals may be dissuaded from entering the market as they fear they cannot earn sufficient returns.

So when might predatory pricing be appropriate?

To be able to use a predatory pricing strategy effectively, a firm will need to consider:

• The financial strength of the firm - predatory pricing techniques will mean much lower (or even negative) margins, so the firm will require the financial reserves to be able to cope with this.
• The financial strength of competitors - how financially secure are the firm's competitors? The greater the reserves they possess, the longer they will be able to hold out and match the lower prices.
• The importance of price - what is the price elasticity of demand for the product? If the price elasticity of demand is very low (i.e. the product is price unresponsive) then a lower price will not be a significant factor in persuading people to switch from other firm.
• The strength of the brand and competitor's brands - if competitors have strong brands, then this will make it more difficult to persuade consumers to switch away as a result of lower prices.