Pricing Strategy

• by understanding customers, competitors and costs, businesses can set prices that maximise revenue + profitability
• choosing the right pricing strategy is essential for a business to be profitable, competitive and successful in the long run
• pricing can play a significant role in positioning the brand in the market and help firm to compete effectively
• types of pricing strategies:

  • cost plus
  • price skimming
  • penetration
  • predatory
  • competitive
  • psychological
• cost plus?

  • business calculates cost of production and adds a markup to determine the final price
  • markup covers cost of production plus business's desired profit margin
  • cost plus price = unit cost + (markup percentage x unit cost)
  • simple strategy, commonly used by manufacturers that produce standardised goods
• price skimming?

  • business sets high price for a new product/service when first introduced to market
  • effective when an established brand introduces a new product and there is high demand for it
  • high prices helps business to recover its development + marketing costs quickly
  • business will gradually lower price to ensure sales continue
• penetration?

  • business sets lower price for new product/service when first introduced
  • effective when business wants to quickly capture market share + attract price - sensitive customers
  • once they have enough customers, business will raise the price
• predatory?

  • business sets prices so low - drives competitors out of market
  • strategy is illegal in many countries - its considered anti-competitive and harms customers by reducing choice in the market
• competitive?

  • business sets prices based on its competitors price
  • effective when business is in a highly competitive market and wants to maintain market share
  • business must continually monitor competitors prices and adjust prices accordingly to remain competitive
• psychological?


  this pricing strategy takes into account the customers emotions, beliefs and attitudes towards product/service
• changes in Pricing to Account for Social Trends:

  • online sales and price comparison sites have had a significant impact on pricing strategies
  • retailers must continually adapt to remain competitive in these markets
• online sales?

  • offer customers convince and 24/7 accessibility
  • retailers have shifted their focus to online sales and adjusted their pricing strategies
  • use of dynamic pricing has changed pricing in this trend: retailers can adjust prices in real-time based on factors(demand and competition) + prices are higher when supply is lower
  • retailers may offer different prices for online purchases compared to in-store purchases to incentive customers to shop online - may mean retailers required fewer physical stores, which will reduce retainer's costs
• understanding factors to consider when changing a pricing strategy can help a business make informed decisions about its pricing and increase its chances of success
• price inelastic?


  where demand for product changes proportionally less than the change in price
• price elastic?


  where demand for product changes proportionally more than the change in price
• price elasticity?


  measured responsiveness of quantity demanded to a change in price
• what does 'introduction' mean in the product life cycle?

  when a product is launched into market after research + development. there's a large spending on marketing to raise awareness of the product
• what does 'growth' mean in the product life cycle?

  sales are increasing at a fast rate, as customers are aware of product. there should be an increase in revenue
• what does 'maturity' mean in the product life cycle?

  sales reach their peak and market saturation can occur. competitions have had enough time to introduce and develop products that can compete meaning more competition for customers
• factors to consider when changing a pricing strategy?

  • number of USP's/amount of differentiation
  • price elasticity of demand
  • level of competition in the business environment
  • strength of the brand
  • stage in the product life cycle
  • costs and the need to make a profit
• number of USPS's/amount of differentiation when changing pricing strategy?


  products with many USP's + high differentiation can command higher prices
• price elasticity of demand when changing pricing strategy?

  business needs to consider the price elasticity of demand when setting prices. businesses should set lower prices if product is price elastic. business should set higher prices if product is price inelastic.
• level of competition in the business environment when changing pricing strategy?

  in highly competitive markets businesses may need to set their prices low to remain competitive. in less competitive markets, businesses may be able to set higher prices
• strength of brand when changing pricing strategy?


  a strong brand with loyal customer base can command higher prices
• stage in the product life cycle when changing pricing strategy?

  • introduction: prices set lower to attract customers and build market share
  • growth: prices can increase as demand increases
  • maturity: prices may need to be lowered again
• costs and the need to make a profit when changing pricing strategy?

  prices must cover the cost of production and provide a reasonable profit margin