Pricing strategies

• High/premium price


  • Businesses deliberately have their price higher than rivals to signal luxury or quality
  • They may not rely on a large number of sales
  • They will usually have a high profit margin on each sale
  • It may be difficult to attract customers who may look for better value from the competition
• Market/competitive price


  • Relies on setting your price at the same level as competitors and rivals
  • The business will then compete on other factors such as convenience, customer services or after sales service
• Low/value price


  • Set below the market price in order to attract customers
  • Customers will often look for the cheapest product as a way of saving money
  • Low prices can be associated with poor quality, even if this is not always the case
• Psychological pricing


  • Used to make customers perceive the price of a product is lower than it is
  • For example, charging £19.99 instead of £20 to make the customer think they are getting a good deal
• Cost-based (cost plus) pricing


  • Based on calculating the cost of producing the item and then adding on the percentage profit required by the company
  • Ensures all production costs are covered, although it does not consider external factors
• Penetration pricing


  • Used to enter a new market
  • The price will be set lower than competitors to gain market share
  • Once established, the price will increase to be more like the market price
  • Can encourage customers to switch brands, but means low profits initially
• Promotional pricing


  • Short term pricing strategy with reduced prices through discounts, special offers or vouchers
  • Often used to attract media interest or clear old/obsolete stock
• Price discrimination


  • Short term pricing strategy where prices change due to changes in consumer demand
  • For example, different prices for peak and off-peak times, different locations, or different customer types
• Destroyer/predatory pricing


  • Used to eliminate competition by setting a very low price to attract customers away from competitors
  • Usually only large businesses can use this as they can withstand the losses for longer
• Psychological pricing uses numbers that have psychological significance such as £9.99 instead of £10.
• Penetration pricing involves setting an initial low price to attract customers quickly and gain market share.
• Price skimming is when the price of a product is set high at first to maximise profits, then gradually reduced as competitors enter the market.
• Value based pricing is when the business sets its own price based on what consumers perceive the product's value to be.
• Competitive pricing involves matching competitor's prices to remain competitive.