Pricing Decisions

Price refers to how much consumers are charged for a product.

There are different strategies for different types of products:

• Price skimming (new products): Price is initially high due to type of product (usually electrical, luxury, innovative)
• Price penetration (new products) Price starts at a lower price to gain market share

Pricing strategies for existing products

• Price leader – dominant firms in the market are able to set the price for the rest of the market
• Price taker – these firms accept the price that the price leaders set
• Predator – predatory pricing is where businesses undercut competitors to drive them out of the market and gain market share

Methods

• Cost based – businesses work out how much products will cost to make, they then add a profit margin on to this to calculate price
• Contribution – Prices are calculated by looking at how much they contribute to variable costs
• Discriminatory – Where businesses can charge different prices to different consumers for the same product e.g. peak and off peak travel

Tactics

• Loss leader – Businesses have products priced at a low level where they will make a profit, this encourages customers into the business where they will buy additional products
• Psychological – Where businesses use prices such as £9.99 as they seem to be cheaper.