Dive into a comprehensive guide to pricing techniques with these meticulously crafted notes. From cost-based pricing to customer-target based strategies, explore a wealth of methodologies designed to optimize profitability while maintaining competitiveness. Delve into the intricacies of promotional...
• practice of setting prices based on the cost of the goods or services being sold
• A profit percentage is added to the cost of an item → determines the price at which it
will be sold
• costs of production + supply are calculated + suitable profit margin is added to
determine the selling price
Mark-up pricing
• calculated as a percentage.
• percentage is calculated from the cost per unit
• Eg: a muffin-making business could calculate that the cost of producing a muffin is
R15,00, then decide on a mark-up of 50 %. This would set the selling price of the
muffins at R22,50.
Customer/target-based pricing
• is when companies set certain targets to achieve → based on what the business
believes customers are prepared to pay
• depends on the perception of the product the business wants to create in their
customers’ minds
Competition-based/orientated pricing
• pricing method = setting prices in relation to the prices of competitors
• also called going rate pricing or competitive pricing
• more competition = lower prices
• If the price is set at a higher level than competitors, consumers may be convinced that
the product is better in terms of quality and usefulness.
Promotional pricing
• sales strategy in which a business temporarily reduces the price of a product or
service to attract more customers
• used when the price is lowered for a short period
, • Eg: special offers/discounts that are valid for a limited period/‘Buy one, get one free’
type promotions
Penetration pricing
• products are sold at very low prices to attract consumers to products that are being
introduced into the market
• aim = convince customers to buy the product
• as soon as the introductory offer is over → price is increased
• often used for new products = not a profitable long-term marketing strategy
Psychological pricing
• uses the customers’ emotional response to encourage sales
• idea = customers will read the slightly lower price and consider it to be lower than the
price is
Bait pricing
• prices are usually set lower than the item’s cost price → to attract customers
• used to attract customers into a shop to buy the product
• Consumers = encouraged to buy another product if the advertised product is sold out
Skimming prices
• prices attached to a new innovative product that is considered unique and prestigious
• = charging higher prices when the product is introduced in order to test demand
• Some consumers are prepared to pay higher prices because such inventions have
prestige value
• As the product gains popularity-the price of the product is gradually reduced
• Price skimming can be successful + profitable in the short term
Factors that influence pricing
Input costs
↳ The higher the input costs = higher the final price
• increase in transport = increase the final price
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