PricingPricing

Price is one element of the marketing mix. A business must decide how to price its product. In making this decision it needs to consider its: Competitors Customers Costs

Market penetration pricing – where a firm charges a very low price when the product is new to get people interested in it and to gain market share. The price is likely to be raised later as the product gains market share. May be worth doing if the market is very competitive Possible problems?

Market penetration pricing – where a firm charges a very low price when the product is new to get people interested in it and to gain market share. The price is likely to be raised later as the product gains market share. May be worth doing if the market is very competitive Possible problems? Poor image/Limited profit/Difficult to raise price later

Skimming is the opposite – where a firm charges a high price to begin with to gain a high profit margin – before lowering it to help it become a mass-market product. This is common with goods based on new technology Possible problems?

Skimming is the opposite – where a firm charges a high price to begin with to gain a high profit margin – before lowering it to help it become a mass-market product. This is common with goods based on new technology Possible problems? Not always appropriate/ limits sales

Competition pricing – where a firm sets a price based on the prices charged by competitors for similar products. Setting the price at the market average avoids price competition and is a safe strategy. The company can then compete using other strategies, like advertising or differences in the product Possible problems?

Competition pricing – where a firm sets a price based on the prices charged by competitors for similar products. Setting the price at the market average avoids price competition and is a safe strategy. The company can then compete using other strategies, like advertising or differences in the product Possible problems? May not stand out/ may not be profitable

Promotional pricing eg discounts, special offers & sales – special deals/offers may be given for a period in order to increase sales or get rid of old stock. Retailers may also offer loss leaders = products which are priced so cheaply that the retailer makes no profit on the product, but promotes them in order to attract customers into the store who then buy other full priced products Possible problems?

Promotional pricing eg discounts, special offers & sales – special deals/offers may be given for a period in order to increase sales or get rid of old stock. Retailers may also offer loss leaders = products which are priced so cheaply that the retailer makes no profit on the product, but promotes them in order to attract customers into the store who then buy other full priced products Possible problems? Low profit/short term only

Prestige/premium pricing – where a business deliberately sets a high price to reinforce the idea that the product is a luxury, up-market product. This is backed by appropriate promotion and distribution. May be worth doing when the product has a clear USP (ie unique selling point) Possible problems?

Prestige/premium pricing – where a business deliberately sets a high price to reinforce the idea that the product is a luxury, up-market product. This is backed by appropriate promotion and distribution. May be worth doing when the product has a clear USP (ie unique selling point) Possible problems? May not have a unique product/may lose sales

Cost-plus pricing involves calculating the costs of producing the product and then adding a mark-up or profit- margin. This can be done when firms are not in direct price competition with other firms, although they can still only charge what customers are prepared to pay Possible problems?

Cost-plus pricing involves calculating the costs of producing the product and then adding a mark-up or profit- margin. This can be done when firms are not in direct price competition with other firms, although they can still only charge what customers are prepared to pay Possible problems? May be too expensive/ may be could charge more

Supply/demand – where the price is set so that the supply equals that demanded by customers. This type of pricing is usually linked to commodities/share trading. If there is excess demand then price will rise; if there is excess supply price will fall. Possible problems?

Supply/demand – where the price is set so that the supply equals that demanded by customers. This type of pricing is usually linked to commodities/share trading. If there is excess demand then price will rise; if there is excess supply price will fall. Possible problems? Frequent changes may confuse/annoy customers

Think! Are any of these methods suitable for your coursework business???? Are any definitely NOT suitable? Discuss this in pairs for 5 minutes. Be ready to feed back your thoughts.