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
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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
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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
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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
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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
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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