Business Revision Guide: 2.4

• Penetration pricing

  When a business is new to a crowded market, they price their products below that of competitors
• Cost plus pricing


  The costs of manufacturing plus what profit is wanted created the selling price
• Promotional pricing

  A reduction in the price to attract customers, boost sales or get rid of old stock
• Skimming pricing


  When a business has something new and unique it can set a high price until competition come into the market
• Competitor pricing


  When there is a lot of competition, a business will look at what other competitors charge and charge the same
• Price is important because it directly affects revenue
• Price must be consistent with the other 3Ps as it will affect the consumer's perception of a good or service
• Wrong pricing decisions can have a serious effect on sales and cash flow
• Price Penetration


  • Builds customer loyalty
  • Can help to develop long-term profitability of higher sales and higher market share
• Price Penetration Disadvantages

  • In the short term, it is likely to result in lower profits than if prices were higher
  • Difficult to raise the selling price in future
• Price Skimming Advantages

  • Higher profits straight away
  • Product may get a reputation for quality encouraging brand loyalty
• Price Skimming Disadvantages


  • Cannot last long as competitors create rival products
  • More slow sales as its expensive and no more customers can afford it
• Competitor Pricing Advantages


  Selling prices in line with rivals so should attract customers
• Competitor Pricing Disadvantages


  • May need other ways to attract customer other than price
  • Must research competitors increase costs
• Cost Plus Advantages

  Profit is guaranteed on each item
• Cost Plus Disadvantages

  If the mark-up is set too high the price may be expensive compared to rival
• Promotional Pricing Advantages

  • Cash flow and market share improve as sales increase
  • Can lead to loyal customers as they will trial it
• Promotional Pricing Disadvantages

  • Customer may only buy when it's on promotion
  • Brand image may be affected by too many sales
• Loss Leader Advantages

  Will attract customers to the business who will hopefully buy other more profitable products
• Loss Leader Disadvantages

  However if not then the business will not make any profit on these items alone