Business Studies

Chapter 13
Pricing

Pricing
Definition Features Advantage(s) Disadvantage(s)
Method

Formula:

烠ජ䯰ঐ 烠 ජ
% 䯰 − 㖰
烠 ජ㖰 ජ

= 䯰 㖰
It is the cost of
Can lose sales if selling
manufacturing the
Cost-Plus It involves estimating how many of The method is easy to apply price is higher than
product plus a
production will be produced, then competitor’s
product mark-up
calculating the total cost of production
and finally adding a percentage
mark-up (profit margin) for profit

It is when product is
priced in line with or Company needs to sell the product at
Sales are likely to be high as your Researching competitor’s
just below a similar price as other brands,
Competitive price is at realistic level and the prices costs time and
competitor’s prices to otherwise consumers might not buy
price is not under- or over-priced money
try to capture more of these products
the market

1
 It is when the price is
It would possibly be used when The product is sold at a
set lower than the
entering a new market and prices It ensures sales are made ad new low price and therefore
Penetration competitor’s price in
would be set lower than competitor’s product enters the product the profit per unit sold
order to be able to
prices. may be low
enter a new market

It is where a high The product will often have cost a lot It may put off some
It can help to establish the product
Skimming price is set for a new in research and development And potential customers due to
as being of good quality
product on the market these costs need to be recouped. high price

● Useful for getting rid of

It is when a product is ● Used when firm wants to price
unwanted stock that wont sell Sales revenue will be
sold at a very low product for low price for set
Promotional otherwise lower due to low price of
price for a short amount of time e.g ‘end-of-year
● Can help to renew interest in a each item
period of time clearance’ or ‘unwanted stock’
business if sales are falling

2
 ● Supermarkets may charge low
● Might involve charging very high prices for products purchased
price for a high-quality product so on a regular basis and this will ● Little sales revenue is
It is when the price is high income customers wish to give customers the impressions lost by putting the
set to match the purchase it as status symbol of being given good value for price just below the
customer’s ● It could also involve charging a money business wants to sell
Physiological
expectations and price for a product which is just ● Ensures that sales are made by the product for
perceptions of the below a whole number e.g $99 is enforcing customer’s ● The competitors may
products just below $100 thus creates perceptions of the product-this do the same and so
impression of being much cheaper may be its brand image when reduce its effect
the price is set high

It means charging different consumer

groups different prices for the same ● A customer is charged
It is charging different
product because they have different according to its own sensitivity
consumer groups
demand levels and therefore pays willingly ● It can add to costs
differently according
Dynamic (e.g average consumers are sensitive ● Method is easy to adopt with as prices are
to their different
to price changes whereas business online marketing constantly changing
demand levels
travels are not much sensitive to ● Can lead to increased revenues
price variations therefore different and profits
groups can be charged accordingly)