Pricing strategies

reasons a business can adopt new pricing strategies

• to try to break into new markets

• to try to increase market share

• to try to increase profit

• to make sure that the costs are covered and the target profit is earned

cost plus pricing

it is the cost of manufacturing plus the percentage added as profit. it includes estimating the number of unit to be produced, the cost of manufacturing the product and adding the percentage as profit.

benefits of cost plus pricing

• easy to apply

• different profits can be used in different markets

• every product earns a profit for the business

limitations of cost plus pricing

• an increase in cost will result in a higher price

• total profit can only be made if a suitable amount of products are sold

• a business might lose sales if their selling price is higher than competitor’s price

competitive price

it is when the price is set just below or in line with competitor’s price.

benefits of competitive price

• higher sales as the price is realistic and not under or over priced

• helps avoid price competition, which can reduce profits, by focusing on setting a price that fits the market

• often used when consumers find it difficult to identify different products from different businesses

limitations of competitive price

• if the cost is higher than competitor’s and the price is still the same, this could result in loses

• high quality product means setting high prices to keep a high quality image, this may lose sales

• it is time consuming and expensive to get detailed research about setting a suitable price

penetration pricing

benefits of penetration pricing

limitations of penetration pricing

price skimming

benefits of price skimming

limitations of price skimming

promotional price

benefits of promotional price

limitations of promotional price

dynamic pricing

pychological pricing

price elastic demand

price inelastic demand