Section outline


  • Learning Intentions


    • Investigate ways in which businesses can price their products
    • Explore examples of different pricing strategies and reasons for using each strategy.
    • Explore the specific effect of changes in price on quantity sold and thus on profit. 
    Success Criteria
    • Can describe several key strategies for pricing products
    • Can predict the effect of a price change on sales and thus profits.

    Price

    The price of o product sends strong messages to consumers. Would you buy a parachute in a sale at half price, or a perfume, for a valued friend, that was advertised as being low price, or petrol at a much higher price than competitors' prices? 

    Pricing strategies

    1. Cost-plus pricing - adding a percentage markup to the estimated unit cost.
    2. Penetration pricing - initial low price to encourage customers to try the product (but could send the message of low quality).
    3. Skimming - high price until competition forces it down
    4. Competitive pricing - in line with, or a certain percentage above, competitors' prices.
    5. Psychological pricing - appears closer to customer's perceived value (eg $3.99)
    6. Prestige price - to promote a luxury image (eg perfume)
    7. Price discrimination - price for the same product varies for different customer groups (eg students, off-peak travel).
    8. Loss leader - very low price attracts customers into the shop to buy other products at 'normal' prices.
    9. Promotional pricing - low price for a short time to renew customer interest or clear unwanted stock.
    10. Range pricing - prices of similar types of product kept within limits.


    In your group, discuss which price strategy is being used in each of the examples below:

        • A watch that’s very similar to others sold in the shops
        • A toy sold for $1.95
        • A tour operator sells holidays during the school holidays as well as at other times.
        • A new brand of washing powder is launched - there are several similar ones already available
        • A supermarket wants to cover the cost of vegetables and make a 100% profit as well.
        • A new mobile phone has been developed that has extra features compared to the competition.