pricing strategies

Pricing Strategy

Choosing the right pricing strategy is essential for a business to be profitable, competitive, and successful in the long run.

Cost Plus Pricing Strategy

The business calculates the cost of production and then adds a markup to determine the final price.

Cost-Plus Price Formula

The formula to calculate the cost-plus price is Unit cost + (Markup percentage x Unit cost).

Price skimming

The business sets a high price for a new product/service when it is first introduced to the market.

The high price helps the business recover its development and marketing costs quickly.

Price skimming effectiveness

This is effective when an established brand is introducing a new product and there is a high demand for it, e.g. successive models of Apple's Macbook Air.

Price penetration

The business sets a low price for a new product/service when it is first introduced.

Once they have enough customers, the business will start to raise the price.

Price penetration effectiveness

This is effective when a business wants to quickly capture market share and attract price-sensitive customers, e.g. many new perfumes launch using penetration pricing.

Predatory pricing

The business sets prices so low that it drives its competitors out of the market.

Competitive pricing

The business sets its prices based on its competitors' prices.

ompetitive pricing effectiveness

This is effective when a business is in a highly competitive market and wants to maintain its market share.

Psychological pricing

This pricing strategy takes into account the customer's emotions, beliefs, and attitudes towards the product/service.

Psychological pricing example

E.g. a business may set its prices at £9.99 instead of £10 as customers perceive the former as a better value.

Factors influencing pricing strategy

By understanding their customers, competitors, and costs, businesses can set prices that maximise revenue and profitability.

Price Comparison Sites

Websites that allow customers to compare prices from different retailers, influencing pricing strategies.