Price (Edexcel GCSE Business)

Types of Pricing Strategies

• Choosing the right pricing strategy is essential for a business to be profitable, competitive, and successful in the long run

• Businesses usually focus on one of two options

  • High profit margin, lower volume pricing strategies (price skimming strategy) e.g. Marks & Spencer Food

  • Lower profit margin, higher volume strategy (penetration pricing strategy) e.g. Tesco

• In the diagram above, the top left and bottom right quadrants are the ones most frequently chosen by businesses and the choice is influenced by the brand and nature of the product

• The top right quadrant is where freemium models are usually located

  • These firms are able to benefit from high profit margins and high sales volumes e.g Spotify 

• It is essential that businesses choose a pricing strategy that reflects the brand and quality of the product/service

• If they choose the wrong strategy, they can reduce the potential level of profitability

Factors Influencing the Choice of Pricing Strategy

• By understanding their customers, competitors, and costs, businesses can set prices that maximise revenue and profitability

• Pricing can play a significant role in positioning the brand in the market and help a firm to compete effectively

• A business needs to consider various factors when setting its pricing strategy

  • Understanding these factors can help a business make informed decisions about its pricing and increase its chances of success

 Factors To Consider When Choosing a Pricing Strategy

•  Adding to the technology point above, retailers have had to adjust their pricing strategies to remain competitive in an online marketplace where customers can easily compare prices e.g www.comparethemarket.com 

• Pricing has changed to reflect the rise of price comparison through the use of price matching policies

  • Retailers now offer to match the prices of their competitors in order to prevent customers from switching to a competitor with a lower price