Customer Care - Pricing Methods


Pricing Methods

  • the right pricing method will help attract and retain consumers in the short & long term
    • an important strategic decision for the business
    • because of the internet and other methods consumers are more aware of prices
  • every item has an RRP
    • Recommended Retail Price: the price at which the manufacturer recommends the retailers sells the product
    • e.g., London Zoo large pencil case/make-up bag £9.99
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Cost-based Pricing: Cost Plus Pricing

  • involves business working out the cost of producing one unit and then adding percentage for profit
  • simple to use, and ensures profit
  • sometimes called mark-up pricing
  • covers the total production costs
  • e.g., Zebra toy costs £3.45 to make, mark-up of 200% (£3.45x3 = £10.35)
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Competition Pricing

  • setting prices based on what rivals are charging
  • 'going-rate' pricing
    • setting a price that is in line with the prices charged by direct competitors
  • Advantages: should be in line with rivals, so price should not be competitive disavantage
  • Disadvantages: needs another way to attract customers. Has to use non-price methods to compete
    • has to provide distinct customer service or better availability
  • most firms do not have sufficient power to be able to set prices above their competitors
    • such businesses are 'price-takers' - they must accept the going market price as determined by the forces of demand and supply
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Pricing Methods

  • Price Skimming: begin by charging a high price to recover their research & development costs
    • over time price is gradually lowered to appeal to the mass market
    • e.g., mobile phones
  • Penetration Prices: involved introducing a new product at a lower price and increasing
    • e.g., newly released products
  • Psychological Pricing: using prices like £9.99 to try and convince consumers they're paying less and getting a bargain
  • Price Discrimination: involves charging different prices to different groups of consmers for the same level of service
  • Promotional Pricing: reduces the RRP to a lower price for a short amount of time
    • may involve introductory offers or special offers/promotions
  • Upselling: where you encourage a customer to buy a product with a better price mark up
  • Add-ons: extra items you encourage the customer to buy to increase the amount of oney they are spending
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