Pricing Strategies
The main pricing strategies a business can use, from cost-plus and competitive pricing to penetration, skimming and loss leaders, and the factors that influence the choice.
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Getting the price right
Set a price too high and customers walk away; set it too low and the business loses money. Choosing the right pricing strategy is one of the four parts of the marketing mix (price, product, promotion, place). This module covers the main pricing strategies a business can use, and what influences the choice.
The pricing strategies
The main pricing strategies in the Edexcel course:
Match the strategy
- Cost-plus pricing
- Competitive pricing
- Loss leader
- Psychological pricing
- Add a markup to the cost of the product
- Match the prices of rival businesses
- Sell cheaply to attract customers who buy other items
- Use a price like 9.99 to feel cheaper
Name that strategy
A new smartphone launches at a very high price, which is then lowered over the following months. Which strategy is this?
- Price skimming
- Penetration pricing
- Cost-plus pricing
- Loss leader
Penetration vs skimming
These two opposite strategies are often confused. Both are used when launching a product.
Real pricing strategies
Select the TWO that are recognised pricing strategies.
- Penetration pricing
- Cost-plus pricing
- Product placement
- Market segmentation
What shapes the price
A business does not pick a strategy at random. The Edexcel course lists four main influences on price: - Technology (online selling can push prices down) - Competition (many rivals means keener prices) - Market segments (a luxury segment will pay more) - The product life cycle (a new product may be skimmed, an older one discounted)
Cost-plus, step by step
Put the steps of cost-plus pricing in the correct order.
- Work out the cost of making one unit
- Decide on a percentage markup for profit
- Add the markup to the unit cost
- Set that total as the selling price
The strategies in words
With _____ pricing, a business adds a markup to its costs. With _____ pricing, it matches its rivals. A _____ price helps a new product enter a busy market, while price _____ earns high profits from early buyers of an innovative product. A _____ is sold cheaply to draw customers in.
Spot the skimming
Price skimming means a high launch price that falls later. Tap the TWO examples of price skimming.
- A new games console launches at 500 pounds, then drops to 350 a year later
- A supermarket sells bread below cost to draw shoppers in
- A cutting-edge phone starts expensive, then falls as newer models arrive
- A new gym charges a low 5 pounds a month to attract its first members
- A shop prices a toy at 9.99 to feel cheaper
Advise the business
Recommend the best pricing strategy for each business.
- A start-up launches a food-delivery app into a market full of rivals and wants users fast. What should it use?
- A tech firm launches a unique, innovative smart-watch that no rival sells yet. What fits best?
- A corner shop wants shoppers to come in and buy lots of items. What could it do with its milk?
Recommend and justify
A small bakery is launching a new luxury cake in a town with several rival bakeries. Recommend a pricing strategy and justify your choice. Write in clear, full sentences.
- Name a suitable pricing strategy for the bakery
- Explain how that strategy works
- Justify why it suits this business and its market
- Mention one influence on the price, such as competition or the market segment