Pricing is one of the most important elements of the marketing mix, as it is the only element of

the marketing mix, which generates a turnover for the organisation. The other 3 elements of the
marketing mix are the variable cost for the organisation;

Product - It costs to design and produce your products.

Place - It costs to distribute your products.

Promotion - It costs to promote your products.

Price must support the other elements of the marketing mix. Pricing is difficult and must
reflect supply and demand relationship. Pricing a product too high or too low could mean lost
sales for the organization.

Pricing Factors

Pricing should take the following factors into account:

1. Fixed and variable costs

2. Competition
3. Company objectives
4. Proposed positioning strategies
5. Target group and willingness to pay

An organisation can adopt a number of pricing strategies, the pricing strategy will usually be
based on corporate objectives.
Types of Pricing Strategies

The table below explains different pricing methods and price strategies with an example of each
pricing strategy.

Pricing Strategy Definition Example

Penetration Here the A television
Pricing organisation sets a satellite company
low price to sets a low price to
increase sales and get subscribers
market share. then increases the
Once market share price as their
has been captured customer base
the firm may well increases.
then increase their
price.
Skimming Pricing An approach under A games console
which a producer sets
a high price for a new
company reduces
high-end product the price of their
(such as an console over 5
expensive perfume) years, charging a
or a uniquely
differentiated premium at launch
technical product and lowest price
(such as one-of-a- near the end of its
kind software or a
very advanced
life cycle.
computer). Its
objective is to obtain
maximum revenue
from the market
before substitutes
products appear.
After that is
accomplished, the
producer can lower
the price drastically to
capture the low-end
buyers and to thwart
the copycat
competitors.
Pricing Strategy Definition Example
Competition Setting a price in Some firms offer a
Pricing comparison with price matching
competitors. In service to match
reality a firm has what their
three options and competitors are
these are to price offering. Others
lower, price the will go further and
same or price refund back to the
higher than customer more
competitors. money than the
difference
between their
price and the
competitor's price.

Pricing Strategy Definition Example

Product Line Pricing Pricing different An example would be a
products within the same DVD manufacturer
product range at offering different DVD
different price points. recorders with different
features at different prices
e.g. A HD and non HD
version.. The greater the
features and the benefit
obtained the greater the
consumer will pay. This
form of price
discrimination assists the
company in maximising
turnover and profits.
Bundle Pricing The organisation bundles This strategy is very
a group of products at a popular with
reduced price. Common supermarkets who often
methods are buy one and offer BOGOF strategies.
get one free promotions
or BOGOFs as they are
Pricing Strategy Definition
now known. Within the
UK some firms are now
moving into the realms
of buy one get two free
can we call this BOGTF
I wonder?
Premium Pricing The price is set high to
indicate that the product
is "exclusive"
Psychological Pricing The seller here will
consider the psychology
of price and the
positioning of price
within the market place.
Pricing Strategy Definition
Optional Pricing Optional-product Pricing is a
method through which the
company earns more through
cross-selling products along
with a basic core product. The
basic core product does not
have many features (and is
priced low) which can be
enhanced through additional
products which are sold at
premium by the same
company.
Example
Examples of products and
services using this
strategy include Harrods,
first class airline services,
and Porsche.
The seller will charge 99p
instead £1 or $199
instead of $200. The
reason why this methods
work, is because buyers
will still say they
purchased their product
under £200 pounds or
dollars, even thought it
was a pound or dollar
away. My favourite
pricing strategy.
Example
This strategy is used
commonly within the car
industry as I found out
when purchasing my car.
Pricing Strategy Definition
Cost Plus Pricing The price of the product is
production costs plus a set
amount ("mark up") based
on how much profit
(return) that the company
wants to make. Although
this method ensures the
price covers production
costs it does not take
consumer demand or
competitive pricing into
account which could place
the company at a
competitive disadvantage.
Cost Based Pricing This is similar to cost plus
pricing in that it takes
costs into account but it
will consider other factors
such as market conditions
when setting prices.
Value Based Pricing This pricing strategy
considers the value of the
product to consumers
rather than the how much
it cost to produce it. Value
is based on the benefits it
provides to the consumer
e.g. convenience, well
being, reputation or joy.
Example
For example a product
may cost £100 to produce
and as the firm has
decided that their profit
will be twenty percent
they decide to sell the
product for £120 i.e.
£100 plus 100/100 x 20
Cost based pricing can be
useful for firms that
operate in an industry
where prices change
regularly but still want to
base their price on costs.
Firms that produce
technology, medicines,
and beauty products are
likely to use this pricing
strategy.