What to charge customers? PRICE What to charge customers?

Price Price is important because: Customers will not buy the product if it costs too much It must be comparable to competitors It must reflect the quality of the product Price charged should allow the business to make a profit

Pricing decisions are made: when the product is launched when extension strategies are required if there is a drop in sales if competition changes to make a return on investment to survive to gain market share to avoid a price war

Pricing strategies LOW PRICE – price is lower than the price charged by competitors Justification – bought because it is cheaper than competitors HIGH PRICE – price is higher than that of competitors Justification – customers will view it as higher quality than competitors products

PROMOTIONAL PRICING – for a short period of time a lower than normal price is charged Justification – bought by customers because they are getting a deal COST-PLUS PRICING – cost of product is calculated and a % is added on for profit Justification – costs are covered but a profit is also made PSYCHOLOGICAL PRICING – charge a price that makes customers think it is cheaper than it is (£9.99 instead of £10.00) Justification – attracts customers who buy on impulse

MARKET SKIMMING – high price is charged for new or unique products MARKET SKIMMING – high price is charged for new or unique products. Price decreases once competitors begin to appear Justification – high levels of profit made because of the lack of competition PREMIUM PRICING – high prices are charged Justification – price give the product a unique and exclusive image. High profits can be made DESTROYER PRICING – price is set deliberately low Justification – forces competition out of business, then the price can be increased

LOSS LEADER – price charged is lower than it costs to make the product Justification – works on the bases that customers buy other products that are priced normally, profit is made on total sales not on one item. eg milk PENETRATION PRICING – introduced at a low price then increased as the product becomes known Justification – encourages customer to buy/try product and loyalty is established COMPETITIVE PRICING - price is similar to competitors Justification – attracts customers and allows businesses to compete. eg petrol

task You have been asked to give advice to someone who is setting up their own business. They are confused by the different pricing strategies available and when they might be used. Create a factsheet describing different pricing strategies and when they might be used.