1.3.3 Pricing strategies

• Cost plus

  when you price something more than it costs
• Competitive pricing

  Pricing in line or slightly below your competitors
• Loss-leaders

  pricing below cost price
• Skimming

  pricing high to begin with and lowering price
• Penetration

  pricing low to begin with and increasing price when you have market share or brand loyalty
• Price discrimination


  pricing according to who you are
• Psychological pricing


  create illusion in mind of consumers possibly of higher quality or better value
• Factors that determine most appropriate pricing strategy

  • number of USPS/amount of differentiation, command higher prices
  • price elasticity of demand -
  • If a business is in a highly competitive market with many substitutes, lowering prices will increase revenue
  • Businesses should set lower prices If the product is price elastic
  • Businesses should set higher prices If the product is price inelastic
• Factors that determine most appropriate pricing strategy for particular situation

  level of competition in business environment

  strength of brand

  stage in product life cycle - introduction (L), growth (increase), maturity, (L)

  • costs and need to make profit - Prices must cover the cost of production and provide a reasonable profit margin
• Changes in online sales pricing to reflect social trends

  dynamic pricing - retailers adjust prices in real time based on demand and competition, prices higher when supply is low

  offering different prices online and in store as an incentive to shop online so retailer requires less physical stores, which reduces' costs
• using price comparison sites to reflect social trends

  comparethemarket.com - customers can use this

  • Retailers now offer to match the prices of their competitors to prevent customers from switching to a competitor with a lower price
  • Retailers may also use pricing algorithms to monitor the prices of their competitors and adjust their prices automatically