1. The Marketing Mix: Price
N5 Business Management

2. 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.

3. Pricing Decisions
Businesses have to take many factors into consideration when deciding on how to price a product.
Some of these factors include:
The product’s life cycle – or expected life cycle
Competitors’ pricing
Cost to make the product
How much profit they want (mark up)
How much supply of the product there is
Target market

4. Pricing Strategies Low Price (Destroyer Pricing)
The price charged is lower than the price charged by competitors.
Used by businesses to try and undercut their competition, i.e. try to encourage customers to buy from them as they are cheaper.

5. Pricing Strategies High Price (Skimming)
Price charged is higher than competitors.
Businesses use this to try and establish a higher quality image over their competition. Prices may reduce over time depending on the product’s life cycle.

6. Pricing Strategies Promotional Pricing
Price charged is reduced or lowered for a period of time.
E.g. Product may normally be £10 but is sold at £5 as an introductory price.
Businesses will use this because they will presume customers will try their product as it is lower in price – an hope that once they try it they become repeat customers.

7. Pricing Strategies Cost-plus Pricing
This pricing strategy involves using the total cost of making the product and adding a % of a profit on (this is also known as “mark-up”).
Businesses will use this to ensure that the cost of production is covered and that a certain amount of profit is guaranteed.

8. Pricing Strategies Psychological Pricing
Price charged is set in a way to make the customer think they are cheaper than what they really are.
Typical example is when a product is priced £4.99 rather that £5 or 99p instead of £1.00.
Businesses use this to encourage customers to buy their product as psychologically they will think it is cheaper.