1. Pricing Strategies GCSE Business Studies tutor2u™
Revision Presentations 2004

2. Introduction
Pricing = deciding what price to set for products and services
What is a price?
What the buyer is prepared to pay in exchange for a product or service
Price – often called something else; e.g.
Fee
Fare
Rent
Subscription

3. Price and the Marketing Mix
Price is a very important part of the marketing mix
Price directly influences profits by creating revenue rather than affecting costs
Price helps a business “differentiate” its product or service compared with other, similar products
E.g. High price = better quality?
E.g. Low price = better value / lower quality?
The price that is set must be consistent with everything else in the marketing mix
E.g. a high-priced product needs to have features/benefits that customers feel justify paying more

4. Price and Marketing Objectives
Main objective of setting the right price = generate the level of sales that meets the objectives of the business
Possible objectives that influence price-setting:
Maximising profits
Maintaining or increasing share of a market
Entering a new market and getting a product/service accepted by customers in the new market
Increasing sales volume (e.g. to make more efficient use of production)

5. Pricing Strategies Cost-plus pricing
Setting a price by adding a fixed amount or percentage to cost of making product
Penetration pricing
Setting a very low price to gain as many sales as possible
Price skimming
Setting a high price before other competitors come into market
Predatory pricing
Setting a very low price to knock out all other competition
Competitor pricing
Setting a price based on competitors prices
Price discrimination
Setting different prices for same good, but to different markets e.g. peak and off peak mobile phone calls
Psychological pricing
Setting a price just below a large number to make it seem smaller e.g. £9.99 not £10

6. Pricing to Enter a New Market
Difficult to get pricing right when entering a new market
Market likely to have well-established competitors
Customers in the market already have perceptions about what the right prices are
How can a business attract attention to their product/service?
What kind of messages are sent to customers by asking for a low/medium/high price?
How will existing competitors in the market react? Will there be a “price war”
If first into market then Price Skimming may be the right strategy
If trying to enter and build share of a well-established market – then Penetration Pricing may be best

7. Product Life Cycle and Pricing
The Product Life Cycle
Describes how sales of a product change over time
Various phases – introduction; growth; maturity; decline
Price needs to change depending on the stage of the product life cycle
E.g. launch phase
For a new market with few competitors. Then price can be high
E.g. growth phase
More competitors and higher sales volume; price likely to be lower

8. Loss Leaders
A product offered at a loss to entice customers to visit a shop or website.
The hope is that customers will either :
Purchase other products at the same time,
Or become longtime / loyal customers to make up for the loss.
Advantages
Loss leaders can be just a few products in a much wider range - but the customer has the impression that the whole range is great value
Good method of short-term pricing
Disadvantages
Customers come to expect low prices on these products