Marketing Unit 2 - Pricing Strategies

A firm will use a 'market-led' strategy if the price of a product will help consumers decide whether they buy it or not.....most of the time anyway. Now, there are four different pricing methods you need to know:

1) Penetration pricing

This is where a firm charges verrryyy low prices for a new product to draw customers and makes consumers more interested.

2) Loss Leader pricing

This is when a price is set below the cost ( a bit like penetration pricing in a way )

Once the product has become well established, the firm will increase the price. This happens a lot with consumer products where existing products have brand loyalty e.g magazines.

3) Price Skimming

This is the opposite of penetration pricing.

Firms charge a higher price...to begin with which just helps make the product desirable to people with large incomes. Once the product is well established, the firm will lower the price to help it become a mass-market product. ("EvErybody Wants iT!")

This happens a lot with consumer goods based on new technology like plasma-screen tv's.

4) Competitive pricing

This is where the firm has to charge similar prices to other firms. This happens mostly when there is lots of choice and lots of product differentiation for example petrol.

Firms will use this method if they arent in competition with other producers price wise. However they still only charge consumers what they are prepared and willing to pay. Like value for money.

There are two main ways it can be worked out:
> by using a mark-up
> by using a profit margin.

Mark-up is the difference between the costs of a good or service ( in this case a product/good) and the price for it.

Profit margin is the amount of revenue earned through sales that covers more than just the costs involved in making a product..excess cash basically which is profit.