Theme 1 Topic 16
Pricing Strategies
Types of Pricing Strategy
Price – the amount of money for which something is exchanged
Suitable for Introducing a New Product:
Price Skimming
High starting price but may decrease over time
Profit is maximised over the product lifecycle
Good for new products aimed at trend setters
Penetration Pricing
Low starting price to gain market share and build customer loyalty
May increase later
Good for new products
Competitive Pricing
All similar producers charge a similar price
It fluctuates slightly
Other Pricing Strategies
Cost Plus Pricing
Total cost of a product plus a % mark up
E.g. A firm has total costs of £30,000 per month. It produces 15,000 widgets per month. Price is
calculated by adding 20% to unit cost. What is the price charged?
20% of 30,000 = 6,000 36,000/15,000 = 2.4
30,000 + 6,000 = 36,000 Price Charged = £2.40
Predatory Pricing
Charging lower prices to get rid of competition in a market and increase market share
May make a loss
Psychological Pricing
Price based on customer expectations
Customers may believe a product is cheaper than it is e.g. £9.99
Customers may think a high price makes a product better
Online Sales
Changes in pricing have occurred which reflects social trends.
The growth of Amazon, eBay, and supermarkets (e.g. Tesco for ordering groceries) has changed shopping
habits. Buying online makes it easier to compare prices and to buy from the cheapest retailer.
Price Comparison Sites – created a climate of competitive pricing, by showing customers the best deals on
items.
Pricing Strategies
Types of Pricing Strategy
Price – the amount of money for which something is exchanged
Suitable for Introducing a New Product:
Price Skimming
High starting price but may decrease over time
Profit is maximised over the product lifecycle
Good for new products aimed at trend setters
Penetration Pricing
Low starting price to gain market share and build customer loyalty
May increase later
Good for new products
Competitive Pricing
All similar producers charge a similar price
It fluctuates slightly
Other Pricing Strategies
Cost Plus Pricing
Total cost of a product plus a % mark up
E.g. A firm has total costs of £30,000 per month. It produces 15,000 widgets per month. Price is
calculated by adding 20% to unit cost. What is the price charged?
20% of 30,000 = 6,000 36,000/15,000 = 2.4
30,000 + 6,000 = 36,000 Price Charged = £2.40
Predatory Pricing
Charging lower prices to get rid of competition in a market and increase market share
May make a loss
Psychological Pricing
Price based on customer expectations
Customers may believe a product is cheaper than it is e.g. £9.99
Customers may think a high price makes a product better
Online Sales
Changes in pricing have occurred which reflects social trends.
The growth of Amazon, eBay, and supermarkets (e.g. Tesco for ordering groceries) has changed shopping
habits. Buying online makes it easier to compare prices and to buy from the cheapest retailer.
Price Comparison Sites – created a climate of competitive pricing, by showing customers the best deals on
items.
