1.3.3 Pricing strategies

• Price Penetration: charges low prices at first, then gradually increases prices. E.g. Cadbury's chocolate

  • competitive when attracting new customers
  • lower profits
• Price skimming: charges high prices to gain high profits before lowering prices when the product devalues E.g. iPhones

  • high profits at launch from early adopters
  • may deter some people from buying until price drops
• Predator pricing: prices are set incredibly low to drive other businesses out the market. E.g. Busways offering free tickets

  • makes the product very competitive
  • may not earn a profit
• Premium pricing: charging high prices for high quality goods. E.g. Louis Vuitton bags

  • high profits reflect the high quality of goods
  • good reputation
  • deter some customers from buying due to high prices
• Seasonal pricing: different prices are charged depending on the level of demand. E.g. train tickets (off-peak)

  • encourages customers to buy at times of low demand
  • makes less revenue during times of low demand
• Loss-leaders: short-term tactic where the business sets one product at a lower price in hopes loyal customers will buy their other products. E.g. Alpro oat milk

  • can attract more loyal customers
  • only works with a large product portfolio
  • less profit on most popular product used as leader
• Psychological pricing: prices are set to appear lower to the customer. E.g. setting prices at £9.99 instead of £10

  • can be more competitive
  • customers may not fall for it
• Price discrimination: higher prices are charged to some customers for the same product/service. E.g. Taxis

  • can help with cashflow during tough times
  • customers may feel dissatisfied and that it is unfair
• Cost-plus: unit-costs of a product plus a markup/sum/percentage E.g. clothing companies

  • ensures a profit on the product
  • may not be as competitive
• Subscription pricing: allowing a customer to pay for a product/service for a certain period of time (usually monthly) E.g. Netflix

  • increased convenience for customers
  • high risk of cancellations
• Factors affecting price:

  • competitors' products and prices
  • market conditions/trends
  • cost of production/promotion
  • nature of the product
  • target market
  • the economy
  • brand reputation/customer loyalty