1. The Marketing Mix
Pricing

2. Pricing Strategies Price skimming Penetration pricing
A high price set to yield a high profit margin
Long-term or short-term strategy (early adopters)
Penetration pricing
Low prices are set to break into a market or to achieve a sudden spurt in market share

3. Pricing Strategies Price leadership Price taking
A large company (the price leader) sets a market price that smaller firms will tend to follow
Price taking
A small firm follows the price set by a price leader
Predator or Destroyer pricing
Firm sets a very low price in order to drive other firms out of the market – sole objective is to reduce number of competitors
Discrimination pricing
Charging different prices to different customers for the same product or service

4. Pricing tactics
Loss leaders
Psychological pricing

5. Influences on the pricing decision
Costs of production
Cost-plus pricing (cost + a mark-up)
Price elasticity of demand

6. Cost-plus pricing Level of mark-up depends upon: Level of competition
Price that customers are prepared to pay
Firm’s objectives

7. Price elasticity of demand
P.O.D. = % change in quantity demanded
% change in price
Price elasticity of demand can be elastic, inelastic or unitary

8. Price elasticity of demand
% change in price leads to a greater % change in quantity demanded
Number is greater than 1
Inelastic
% change in price leads to a smaller % change in quantity demanded
Number is smaller than 1
Unit elasticity
Price change is exactly cancelled out by the change in quantity demanded so sales revenue stays the same

9. Determinants of PED Necessity Habit Availability of substitutes
Brand loyalty
Proportion of income spent on a product
Income of consumers

10. Significance of PED Inelastic Elastic
Price rise always increases sales revenue & profit
Price fall leads to lower sales revenue and profit
Elastic
Impact of a price increase is outweighed by relatively large % change in demand, so sales revenue decreases
In the case of a price fall, demand increases, but need to understand costs of production in order to see if profits will increase

11. Difficulties in calculating & using PED
Other factors not ‘remaining equal’
Competitors’ reactions
Consumers’ reactions
Market research – reliability of surveys