MANAGEMENT OF MARKETING

PRICING STRATEGIES

LEARNING INTENTIONS/SUCCESS CRITERIA

LEARNING INTENTIONS:

I understand the role of

PRICING as part of the

marketing activities of an

organisation.

SUCCESS CRITERIA:

• I can explain the factors which will influence the price at which an organisation sells its products.

• I can describe the different pricing strategies available for businesses to use.

• I can suggest appropriate pricing strategies for different products

Why is Price Important?

If a business sets the wrong price for its goods or

services, they run the risk of losing customers or

not attracting customers in the first place.

If they set the price too high – customers may

go to a competitor to get better value for money.

If they set the price too low – the business may not

make enough profit to survive.

Factors which Influence Price

Before a business sets its selling price there aremany factors which they must consider, such as:• The stage of the product life cycle• Competitors prices• The cost to provide the good or service• The level of profit wanted• The quantity of good or service to be

supplied• The market segment that is being targeted

Factors which Influence PricePRODUCT LIFE CYCLE

Goods and services at the beginning of the product lifecycle are usually priced higher as the demand is highand research and development costs have to be recovered.

As demand for a good or service falls, the price falls Too and when goods are in the Decline Stage, prices will be at their lowest to encourage sales.

Factors which Influence Price

COMPETITORS PRICES

A business must always keep an eye on the

price being charged by competitors as if

their price is higher than competitors they

may lose customers.

Factors which Influence Price

COSTS

A business must cover its costs in order to

break-even. This means that costs must be

calculated carefully and selling price set at

a level which covers these and gives a

percentage of profit too.

Factors which Influence Price

LEVEL OF PROFIT REQUIRED

If profit is an objective for the business, then

higher prices may have to be charged to

achieve this. However, this is not a

consideration for businesses in the Public

and Third Sectors.

Factors which Influence Price

QUANTITY TO BE SUPPLIED

Goods and services that are not provided in

large quantities will be priced higher than

those that are mass produced.

Factors which Influence Price

MARKET SEGMENTIf the market segment being targeted is highincome groups, goods and services will behighly priced to indicate quality and luxury.

On the other hand if low income groups arebeing targeted, lower prices will be chargedeg supermarket own brands.

PRICING STRATEGIES

There are many pricing techniques that businesses can use. The technique used will depend of the power of the business within the market in which it operates. The mostcommon techniques are:• COST-PLUS PRICING• DESTROYER PRICING• LOSS LEADERS• PREMIUM PRICING• PENETRATION PRICING• PRICE SKIMMING

PRICING STRATEGIES

COST-PLUS PRICING:This is when the business bases its price onthe cost of buying or making the product orproviding a service, plus a ‘mark up’ percentage togive profit.DESTROYER PRICING:This is when a business sets its prices very low, often running at a loss in the short term. This is used to ‘destroy’ the competition and become the market leader.

PRICING STRATEGIES

LOSS LEADERS:This is when a product is sold at a loss to attract customersto buy other full-priced products eg fuel sold by supermarkets.PREMIUM PRICING:This is where a high price is charged to convince consumers that the product is an up-market, luxury product. This will be reinforced through advertising and promotion. Selling less at a higher price may be moreprofitable than selling more at a lower

PRICING STRATEGIES

PENETRATION PRICING:This is when new products are offered at lowprices when entering a new market and once customer loyalty has been built up,prices are increased. This is a risky strategy as customers may not think that thehigher price is value for money after payingsuch a low price initially.

PRICING STRATEGIES

PRICE SKIMMING:

This is when a business charges a high price

initially and then subsequently lowers its price.

This technique will be used by businesses who are

market leaders where there is no competition for

the product or service being provided eg new

technology products. They will lower the price

once competitors enter the market.

TASK

Now try Worksheet 28.