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Pricing Techniques
Marketing
Learning intentions
To be successful in today’s lesson you
should be able to do the following:
 Understand the importance to
companies of pricing techniques and
the various factors that affect their
choice of technique.
 Name and describe 7 pricing
techniques.
Pricing Techniques
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When the type of product or service is
decided, it’s price must also be considered.
Important factors include the following:
Price of competitors’ products;
Quality of product;
Cost of materials and labour used;
Type of market. e.g. Luxury products such
as perfume will charge high prices, which
are not an indication of the cost of
production.
Cost-Plus Pricing
This is where the price is determined
by the cost of making the product
with a small percentage added on for
profit.
e.g. if the cost of making a cake is
£3, but the cake is sold at £5, then
the profit is £2.
Competition-Based Pricing
Businesses may price their products
according to what competitors are
offering, usually trying to beat
competitors prices.
Supermarkets are fiercely competitive
in their pricing policy, often resorting
to ‘loss leading’ on some products to
attract customers.
Penetration Pricing
(Introductory Price)
Where a business is bringing out a new
product and is unsure of whether
customers will buy it, a lower price is
charged for the product to gain interest.
Once a market has been established for the
product, the price will increase.
e.g. a new magazine will have an
‘Introductory Price’ of say 50p, then the full
price may be £1.50.
Skimming Pricing
When a new product is going to be
launched and is ‘the latest thing’, business
can charge high prices in the short term to
‘skim’ as much profit as possible before
competitors bring out similar products.
e.g. this is the case with computing and
electronic products, where consumers are
likely to pay high prices to be ‘ahead of the
rest’.
Premium Pricing
Some products would not sell if they had a
low price.
Some people buy products because of its
high (premium) price to show that they
have money, status etc. This is called
‘perverse demand’.
e.g. If a Rolls Royce cost the same as a
Ford Mondeo, people who buy Rolls Royce
cars would not be attracted to it.
Destroyer Pricing
This is a tactic used by very large businesses to
discourage new competition. Since these businesses
make huge profits, they are able to dramatically
reduce their price to get ‘rid’ of the competition.
Although very unfair it is often practiced by big
business.
e.g. when bus services were privatised, many small
bus companies started operating in the major cities
around the UK, in order to get rid of them, the major
bus companies dramatically reduced their prices – to
the point where some companies were even offering
free services for a short time.
Promotional Pricing
This a tactic used by companies
whose sales may be falling and in
order to increase sales will drop their
price for a limited period to attract
customers.
Learning intentions
To be successful in today’s lesson you
should be able to do the following;
 Understand the importance to
companies of pricing techniques and
the various factors that affect their
choice of technique.
 Name and describe 7 pricing
techniques.