MANAGEMENT OF MARKETING PRICING STRATEGIES

LEARNING INTENTIONS/SUCCESS CRITERIA LEARNING INTENTIONS: I understand the role of PRICING as part of the marketing activities of an organisation. SUCCESS CRITERIA: I can explain the factors which will influence the price at which an organisation sells its products. I can describe the different pricing strategies available for businesses to use. I can suggest appropriate pricing strategies for different products

Why is Price Important? If a business sets the wrong price for its goods or services, they run the risk of losing customers or not attracting customers in the first place. If they set the price too high – customers may go to a competitor to get better value for money. If they set the price too low – the business may not make enough profit to survive.

Factors which Influence Price Before a business sets its selling price there are many factors which they must consider, such as: The stage of the product life cycle Competitors prices The cost to provide the good or service The level of profit wanted The quantity of good or service to be supplied The market segment that is being targeted

Factors which Influence Price PRODUCT LIFE CYCLE Goods and services at the beginning of the product life cycle are usually priced higher as the demand is high and research and development costs have to be recovered. As demand for a good or service falls, the price falls Too and when goods are in the Decline Stage, prices will be at their lowest to encourage sales.

Factors which Influence Price COMPETITORS PRICES A business must always keep an eye on the price being charged by competitors as if their price is higher than competitors they may lose customers.

Factors which Influence Price COSTS A business must cover its costs in order to break-even. This means that costs must be calculated carefully and selling price set at a level which covers these and gives a percentage of profit too.

Factors which Influence Price LEVEL OF PROFIT REQUIRED If profit is an objective for the business, then higher prices may have to be charged to achieve this. However, this is not a consideration for businesses in the Public and Third Sectors.

Factors which Influence Price QUANTITY TO BE SUPPLIED Goods and services that are not provided in large quantities will be priced higher than those that are mass produced.

Factors which Influence Price MARKET SEGMENT If the market segment being targeted is high income groups, goods and services will be highly priced to indicate quality and luxury. On the other hand if low income groups are being targeted, lower prices will be charged eg supermarket own brands.

PRICING STRATEGIES There are many pricing techniques that businesses can use. The technique used will depend of the power of the business within the market in which it operates. The most common techniques are: COST-PLUS PRICING DESTROYER PRICING LOSS LEADERS PREMIUM PRICING PENETRATION PRICING PRICE SKIMMING

PRICING STRATEGIES COST-PLUS PRICING: This is when the business bases its price on the cost of buying or making the product or providing a service, plus a ‘mark up’ percentage to give profit. DESTROYER PRICING: This is when a business sets its prices very low, often running at a loss in the short term. This is used to ‘destroy’ the competition and become the market leader.

PRICING STRATEGIES LOSS LEADERS: This is when a product is sold at a loss to attract customers to buy other full-priced products eg fuel sold by supermarkets. PREMIUM PRICING: This is where a high price is charged to convince consumers that the product is an up-market, luxury product. This will be reinforced through advertising and promotion. Selling less at a higher price may be more profitable than selling more at a lower

PRICING STRATEGIES PENETRATION PRICING: This is when new products are offered at low prices when entering a new market and once customer loyalty has been built up, prices are increased. This is a risky strategy as customers may not think that the higher price is value for money after paying such a low price initially.

PRICING STRATEGIES PRICE SKIMMING: This is when a business charges a high price initially and then subsequently lowers its price. This technique will be used by businesses who are market leaders where there is no competition for the product or service being provided eg new technology products. They will lower the price once competitors enter the market.

TASK Now try Worksheet 28.