Transcript Pricing Strategies

Pricing Strategies
GCSE Business Studies
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Revision Presentations 2004
Introduction
Pricing = deciding what price to set for products and services
What is a price?
 What the buyer is prepared to pay in exchange for a product or
service
Price – often called something else; e.g.
 Fee
 Fare
 Rent
 Subscription
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Price and the Marketing Mix
Price is a very important part of the marketing mix
Price directly influences profits by creating revenue rather
than affecting costs
Price helps a business “differentiate” its product or service
compared with other, similar products
 E.g. High price = better quality?
 E.g. Low price = better value / lower quality?
The price that is set must be consistent with everything else
in the marketing mix
 E.g. a high-priced product needs to have features/benefits that
customers feel justify paying more
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Price and Marketing Objectives
Main objective of setting the right price = generate the level of
sales that meets the objectives of the business
Possible objectives that influence price-setting:
Maximising profits
Maintaining or increasing share of a market
Entering a new market and getting a product/service
accepted by customers in the new market
Increasing sales volume (e.g. to make more efficient use of
production)
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Pricing Strategies
Cost-plus pricing Setting a price by adding a fixed amount or
percentage to cost of making product
Penetration
pricing
Setting a very low price to gain as many sales as
possible
Price skimming
Setting a high price before other competitors come
into market
Predatory pricing Setting a very low price to knock out all other
competition
Competitor
pricing
Setting a price based on competitors prices
Price
discrimination
Setting different prices for same good, but to different
markets e.g. peak and off peak mobile phone calls
Psychological
pricing
Setting a price just below a large number to make it
seem smaller e.g. £9.99 not £10
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Pricing to Enter a New Market
Difficult to get pricing right when entering a new market
 Market likely to have well-established competitors
 Customers in the market already have perceptions about what
the right prices are
 How can a business attract attention to their product/service?
 What kind of messages are sent to customers by asking for a
low/medium/high price?
 How will existing competitors in the market react? Will there be
a “price war”
If first into market then Price Skimming may be the right
strategy
If trying to enter and build share of a well-established market
– then Penetration Pricing may be best
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Product Life Cycle and Pricing
The Product Life Cycle
 Describes how sales of a product change over time
 Various phases – introduction; growth; maturity; decline
 Price needs to change depending on the stage of the product life
cycle
E.g. launch phase
 For a new market with few competitors. Then price can be high
E.g. growth phase
 More competitors and higher sales volume; price likely to be
lower
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Loss Leaders
A product offered at a loss to entice customers to visit a shop
or website.
The hope is that customers will either :
 Purchase other products at the same time,
 Or become longtime / loyal customers to make up for the loss.
Advantages
 Loss leaders can be just a few products in a much wider range but the customer has the impression that the whole range is
great value
 Good method of short-term pricing
Disadvantages
 Customers come to expect low prices on these products
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