In this lecture notes you will find in depth notes for the topic "Pricing strategies" Theme 1 of Edexcel A level business which is called marketing and people.The textbook "Edexcel AS/A level BUSINESS, 5th edition, Pearson" is referenced in these lecture notes. They are really well written and simp...
LESSON 10
.Pricing strategies
A strategy is a set of plans designed to meet objectives.
Pricing strategies is a part of the marketing strategies. It’s a set of plans about pricing which
help businesses to achieve their marketing and corporate objectives.
.Cost plus pricing
Involves adding mark-up to unit costs.
- Mark-up is a percentage of the unit cost
- Common with retailers
- It ignores market condition (a business may have higher prices than those of its rival
and this might result in low sales)
PRICE= unit cost+(mark-up x unit cost)
£80 +(25% x £80)=£80+£20=£100
MARK-UP= unit cost-price, expressed as a percentage of the unit cost
Unit cost=£40, Price=£70
£70-£40= £30⇒30/40 x 100=75%
.Price skimming
When a business launches a product into a market charging a high price for a limited period.
- The aim is to generate high levels of revenue with a new product before competitors
arrive.
- Technical products, pharmaceutical companies
- Advantages: high prices are charged in a market where there are people
who are prepared to pay them⇒ helps to maximise revenue.
- The higher initial revenue helps to recover the R&D cost and to elevate the image.
- It can be only used if demand is price INELASTIC
- May attract competitors into the market
.Penetration pricing
When a business introduces a new product and charges a low price for a limited period.
- To get a foothold in the market
- Businesses hope that customers are attract by the low price and then carry on
buying it when the price rises
- One approach could be offering the first one or few items free or at low
price⇒Introductory offer
- Benefits:
- When products are targeted at middle or low income consumer
groups⇒more likely to be responsive.
- The lower the introductory offer, the faster the growth in sales
- Fast growth in sales may allow a business to lower production costs by exploiting
economies of scale
- Can put pressure on rivals (may have to lower their prices or make an effort to
differentiate their products
If consumers become accustomed to low prices they may be lost when the introductory offer
expires as they are not prepared to pay the higher price.
- Sports clubs, online gaming sites, driving schools
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