1.3.3 Pricing Strategy

• Cost plus pricing

  • The business calculates the cost of production and adds a markup to make the final price
  •  markup covers the cost of production + the business' desired profit margin
  • commonly used in standard goods (washing machine)
• calculation for cost plus

  cost plus price = Unit cost + (mark up percentage x unit cost)
• Price skimming

  • high price when first introduced then slowly lowers
  • effective when established brand introduces a new product & there's high demand
  • helps business recover its development & marketing costs quickly
  • lowers price to ensure sales continue
• Penetration Pricing

  • low price when first introduced then increases
  • effective when business wants to capture market share quickly
  • attracts price sensitive customers
• Predatory Pricing

  • sets prices low so it drives competitors out of the market
  • strategy is illegal in many countries
• Competitive Pricing

  • price is set based on competitor's prices
  • effective in a highly competitive market to maintain market share
  • continuous monitoring & adjustment to pricing required
• Psychological Pricing

  • takes into account customer's beliefs, emotions & attitudes towards products
  • 99p instead of £1
• • Pricing can play a significant role in positioning the brand in the market and help a firm to compete effectively
•  understanding their customers, competitors, and costs, businesses can set prices that maximise revenue and profitability
• impact of differentiation on pricing

  • high differentiation = premium prices
• Impact of ped of demand on pricing

  • set lower prices if product is price elastic
  • higher prices if product is price inelastic
• Impact of competition on pricing

  • highly competitive markets, set low prices
  • less competitive markets, higher prices
• Impact of brand on pricing

  • strong brand with loyal customer base can command higher prices
• Impact of life cycle on pricing

  • introduction - price may be set low to attract customers & build market share
  • growth - prices increase as demand increases
  • maturity - price lowered again
• impact of cost & need to make profit on pricing

  • price must cover cost of production & provide reasonable profit margin
• • Retailers must continually adapt to remain competitive in these markets
• impact of online sales on pricing

  •  offer customers convenience and 24/7 accessibility
  • Retailers can adjust prices in real-time based on factors such as demand and competition (dynamic pricing)
  • Prices are higher when supply is lower and vice versa
  • may offer lower prices online versus in-store to increase online purchase therefore reducing retailer's cost
• impact of price comparison sites on pricing

  • adjust prices to remain competitive as customers can compare their prices with other retailers.
  • business may offer matching prices of their competitors to prevent customers from switching to a competitor with a lower price
  • may use pricing algorithmsto monitor prices of competitors and adjust their prices automatically
• Pricing method is the method used to calculate the actual price set.
• Pricing strategy is adopted over medium to long term to achieve marketing objectives.

  Has an impact on marketing strategy
• Pricing tactics are adopted in short term to suit particular situations.

  Limited impact beyond the product itself
• Loss leader

  • Price is set below the normal price & below cost to customer
  • encourages customer to buy other products
• Dynamic pricing

  • flexible pricing for products & services based on current demand
• Price Discrimination

  • customers getting charged differently because they belong to a different segment
  • E.g. lower prices for children
• Price makers = price leaders

  seller that has enough pricing power & influence to set the price in the market
• Price taker = Price follower

  follows the price - changing lead of the market leader