1.3.3 Pricing strategies

What are the 5 Pricing strategies

Cost plus

Price skimming

Penetration

Predatory

Competitive

Psychological

Unit cost + (Mark up percentage x Unit cost)

What is Cost plus pricing? Which businesses is this commonly used by

Benefits

Calculating the cost of production and adding a % markup to guarantee profit

Producers of standardised goods eg washing machine

Simple to calculate

Guarantees profits

What is price skimming

When is it effective

Setting a high price when a product is first launched and lowering over time

Effective for established brands where there is high demand for a new product

What does price skimming allow

Allows a business to recover development and marketing costs

What is price penetration

One advantage

Setting a low price to attract customers and raising the price once they have enough customers

Attract price sensitive customers ad captures market share

What is Predatory pricing

Setting the price really low to drive out competitors

What is competitive pricing

When is this effective

Setting prices based on competitors prices

When in a highly competitive market to maintain market share

What is psychological pricing

Pricing that attempts to influence a customer's perception of price to make a product's price more attractive

What factors influence the use pricing strategies

Level of differentiation/USPs

PED

Competition

Strength of the brand

Stage in the product life cycle

How does differentiation affect a businesses pricing strategy

A business with many USPs and high differentiation can demand higher prices

How does the PED affect the chosen price strategy of a business

A business whos products are price elastic should set lower prices

A business with products that are price inelastic can set high prices

How does the level of competition affect the price strategy of a business

In competitive markets business have to set low prices to remain competitive

In less competitive markets, businesses may be able to set higher prices