Pricing strategies are crucial to any marketing mix and reflect the value that the product or service offers to the consumer.
factors affecting price decisions- cover the cost of production, acceptable to customers, price elasticity of demand, stage of life cycle where the product is in, level of competition and if the product has strong usp than they offer high prices
price skimming- new and innovative products are sold at high prices when they first reach the market as consumers will spend more as the product has low supply and high price boosts the products image increasing appeal and prices are than dropped after they have been on the market- potential customers can be put off the high price
Penetration pricing: A low initial price is set to attract customers and gain market share. Once established, the price might be increased. This strategy is often employed by new or less-known businesses or for innovative products.
customers may expect the price to always be low and if not this can cause them to be unloyal
works best for businesses that benefit from lower costs when manufacturing large quantities of a product
predatory pricing This method aims to eliminates competitors from the market as it lowers prices Some forms of this strategy are illegal in the UK but are allowed if low-cost prepared to endure low-profit margins.
competitive pricing- when business monitor competitor prices to make sure that they are equal or lower supermarkets and department stores usually use this
physiological pricing- bases the price on the customers expectations if a high price makes people think the product is good quality
psychological pricing- uses numbers such as £9.99 instead of £10 which gives the impression that the product is cheaper than it actually is
•A cost-plus pricing strategy seeks to set a price for a product or service which covers the costs AND provides a good profit margin for the business
benefits of cost plus pricing-
Protects the profitmargins of the business
Easiest method of pricing to apply
Easy to estimateprofit levels
drawbacks of cost plus pricing- This method of pricing does not take into account the prices of the competition
skimming benfits- A high starting price can establish an upmarket image
skimming drawbacks- Risky strategy as customers may be put off from buying due to the high price
competitive pricing benefits -Useful in a market where one brand is dominant, the other brands would need to discount and offer lower prices encourage customers to buy
competitive drawbacks- Pricing at the competitive rate may not cover all the costs of some smaller businesses
penetration benefits- Works best with new products being launched to encourage consumers to try the product
penetration pricing drawbacks- Consumers may have bought anyway, even without the low start price
predatory pricing benefits- drive competitors out of the market place or set a barrier to entry to discourage new entrants to the market
predatory pricing drawbacks- Depends on the price elasticity of the product, if it is low then a lower price won’t make much difference to customer demand
psychological benefits- Ideal for products which want to project a premium image
psychological drawbacks- Psychological pricing strategy can be high risk