Theory on Pricing Strategy

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Presentation transcript:

Theory on Pricing Strategy For Lesson 11

Products and services need to be priced correctly or the business may not succeed. There are a number of ways to determine a satisfactory price We are going to look at a number of different pricing strategies For your task you need to be able to explain what the pricing strategy is and then you need to decide the pricing strategy that best suits you. Pricing Policy

The business calculates how much it costs to make the product then adds on a % for profit E.g. Chocolate bar The business adds up the cost of the item with the overheads, then marks up the product/service for the profit. The problem is that this strategy does not consider the customer and it is difficult to calculate the cost of providing a service Cost Plus

Market Driven Look at the price that your competitors are charging Eg. Soft Drinks: Market Driven

Penetration Pricing or Break into the market The business charges low prices in order to obtain a market share. Once it has achieved an acceptable share of the market, the business will increase the price. E.g. New magazines Penetration Pricing or Break into the market

Premium Pricing or Skimming Take advantage of initial high demand for a new product by setting an initial high price This method is used by businesses that have a competitive advantage which is not sustainable. The high price attracts new competitors into the market, which results in the prices being lowered due to increase supply Premium Pricing or Skimming

Set your price according to what customers are willing to pay E.g. through market research Customer Driven

A business sells its products/services at a low price A business sells its products/services at a low price. All business activities are kept at a minimum, including marketing and manufacturing. Examples include supermarket own brands. Economy Pricing

Psychological Pricing This strategy is used by businesses that want the consumer to believe they are getting a product/service much cheaper than it actually is. An example of this method would be a product priced at 99p rather an £1 Psychological Pricing

This method is used when a product/service has been on the market for some time and demand is beginning to fall. Prices are reduced temporarily in the hope of stimulating renewed interest in it. There are many examples of promotional pricing including approaches such as BOGOF (Buy one get one Free) Promotional Pricing

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