Price 

Pricing 

❖ Pricing is another element in the marketing mix. 

❖ It is important to get the price right otherwise people will buy goods and services elsewhere. 

Factors that affect price:

• Objectives: Pricing can be used to achieve certain aims e.g. a very low price can be set yo drive out rivals
• Taxes: Many goods have taxes on them, e.g. in the UK there are heavy taxes on tobacco and petrol
• Competition: Prices are often influenced by those charged by rivals. If there is a lot of competition, a firm will have less control over price
• Consumers’s perceptions: Consumers want values for money so prices must reflect this
• Costs: Costs have to be covered so that profit is made. Thus, as costs rise prices will also rise.
• Marketing mix: Price has to fit in with other elements in the mix, e.g. ‘up-market’ products must have a higher price

Cost-Plus Pricing 

Cost-plus – working out the cost of making a product and then adding on a percentage. 

A business can make a profit only if the price charged eventually covers the costs of making an item. One way to try to ensure a profit is to use cost plus pricing. For example, adding a 50% markup to a sandwich that costs £2 to make means setting the price at £3. The drawback of cost plus pricing is that it may not be competitive. 

Price Penetration 

Price penetration – start with a low price and increase it over time. 

Penetration pricing means setting a relatively low price to boost sales. It is often used when a new product is launched, or if the firm’s main objective is growth. 

Price Skimming 

Price skimming means setting a relatively high price to boost profits. It is often used by well-known businesses launching new, high quality, premium products. 

Price skimming – start with a high price and then reduced over time 

Competition- Based Pricing 

A business takes into account the price charged by rival organisations, particularly in competitive markets. Competitive pricing occurs when a firm decides its own price based on that charged by rivals. Setting a price above that charged by the market leader can only work if your product has better features and appearance. 

Promotional Pricing 

Promotional pricing usually involves lowering the price of a product for a short period of time to draw in customers. Prices might be cut for a number of easons: 

➔ to get rid of old stock (before the start of a new selling season perhaps) 

➔ to generate some cash quickly to help solve a cash flow problem 

➔ to generate renewed interest in an existing product 

➔ to attempt to win a larger share of the market by encouraging brand switching. 

There are a number of different approaches to promotional pricing. Some examples are outlined below. 

DISCOUNTS AND SALES

Businesses often cut prices for a short period. They have sales where goods are sold below the standard price. Some of these sales are seasonal. For example, in some countries, sales may occur at particular times of the year. For example, in the USA many retailers discount their products on ‘Black Friday’. This is the day after Thanksgiving Day and signals the start of the Christmas shopping season. 

PSYCHOLOGICAL PRICING 

One common pricing strategy is to set the price slightly below a round figure – charging £99.99 instead of £100. This is called psychological pricing. Consumers are ‘tricked’ into thinking that £99.99 is significantly cheaper than £100. Of course it is not but this psychological effect often works for businesses. 

LOSS LEADERS 

Some products are sold at a price lower than cost. These are called loss leaders and are popular with supermarkets. The objective of this strategy is to draw customers into a store where they will buy the loss leader.