The Marketing Mix: Price
GCSE/IGCSE Business Studies
Pricing Strategies
Pricing Strategies come in various
forms but have one or more of the
following objectives:
• To secure a maximum profit
• To Maximise sales
• To increase market share
• To cover all costs
• To reach a target or revenue profit
• To secure a place in a new market
To cover the cost of producing the
product plus a profit
Advantages
• Method is easy to work out a price
• Different mark up for different markets
• Each product secures a profit
Disadvantages
• Could Lose sales if the selling price is a lot higher
than your competitor’s price
• Profit can only be made if there are enough sales
• Could reduce incentive to lower costs and be more
efficient
Cost plus pricing
Products are priced similar to or just below the
competitor’s price
Advantages
Sales are likely to be high as the price is competitive
Avoids a price war
Good when products are ‘homogenous’ – e.g. milk or
bread
Disadvantages
Researching your competitor’s prices can take time
Deters quality product or service and innovation
Competitive
pricing
This is when a low price for a new product is
charged in order to attract customers from existing
competitor’s products and gain good market share.
Advantages
Penetration
pricing
• Useful if launching product to a new market in the product life
cycle
• Ensures product will be sold so the product enters the market
• Builds up market share quickly
Disadvantages
• Can be very loss make in its early stages
• Customers may get used to a low price
• Can be perceived as low quality
High price is set for a new product on the market
Advantages
Price Skimming
• Can make people think product is good quality because it’s
expensive
• High Development costs recovered
• Early profits made
Disadvantages
• Consumers may not buy the product because they think its
overpriced
• Encourages greater competition
Product sold at a low price for a short
period of time:- e.g a special offer or sale
Advantages
Promotional
pricing
• Useful when clearing old stock that doesn’t get sold
• Promotes the business
• Relaunches a failing product
Disadvantages
• Low sales revenue as prices are low could result in
loss
• Could lead to price war
Methods
include:
Psychological
pricing
Charging high prices for a
high-quality product so
consumers purchase it as a
status symbol:- e.g. diamonds
Prices just below a whole
number:- e.g $9.99
Charge low prices for some
items to attract customers into
the store
the practice of varying the price for a product or service to
reflect changing market conditions, in particular the
charging of a higher price at a time of greater demand.
Dynamic
Pricing
Examples can include
Seasonal changes:- e.g. Airline tickets, hotel rooms
Off Peak sales:- e.g. Train fares
Different prices for different segments: e.g. Children
charged less
A term used to describe the sensitivity of
price changes to demand
Price Elasticity of
Demand
ELASTIC PRICE DEMAND:- a small change
in price can cause a big change demand.
Very common when competition is high
INELASTIC PRICE DEMAND:- changes in
price result in little change in demand as
customers carry on buying the product; at
least in the short term
Video
Presentation