The role of pricing decisions in the marketing mix
-When deciding a price for an existing product or a new product, the business must be careful to choose a price that is suitable with the market.
-Some products are sold in very competitive markets so they will have to set the price near to the competitors' prices.
-Some products are sold in very competitive markets so they will have to set the price near to the competitors' prices.
Pricing strategies
A business can adopt new pricing strategies for several reasons:
- to try to break into a new market
- to try to increase its market share
- to try to increase its profits
- to make sure all its costs are covered and particular profit is earned
The main methods of pricing
Cost-plus pricing involves estimating the amount of product that are going to be produced, then calculating the cost of manufacturing this product and then add a percentage mark-up for profit.
- The method is easy to apply
- You could lose sales if the selling price is higher than your competitors' price
Competitive pricing is when the product is priced just below the competitors' prices to try to attract more customers
- Sales are likely to be high as your price is at a realistic level, not under- or over-priced
- It takes time to research about the competitors' price
Penetration pricing is when the price is set at a low price to enable to enter a new market
- It ensures that sales are made and the new product enters the market
- The product is sold at a low price so there might not be a lot of profits
Price skimming is where a high price is set for the new product of the market
- Skimming can help to establish the product as being of good quality
- It may put off some potential customers because of the high price
Promotional pricing is when a product is sold at a very low price for a short period of time.
- It is useful to get rid of unwanted products that will not sell.
- Renew interest in a business if sales are falling.
- Revenue could be lower because of the low price
Psychological pricing