1. What to charge customers?
PRICE
What to charge customers?

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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.