A business may use a number of different pricing strategies.
High Volume Strategy is where the product sells lots but profit margins are low. This is usually effective when the business can benefit from economies of scale e.g. tins of beans.
High Margin Strategy is where fewer items are sold the profit margins are large. A business will have added value to the product meaning the customer is willing to pay a premium price e.g. a designer dress.
Either strategy can be effective.
Influences on pricing strategy
- Technology – customers can easily research price, smaller businesses can compete with larger ones through e-commerce
- Competition – more competition usually means lower prices (so a business will have to compete in other ways)
Pricing Strategy and the Product Life Cycle
Price skimming – high prices are charged at the INTRODUCTION stage when demand is high. This is often the case with technological products which have a limited lifespan.
Penetration pricing – prices are set really low to encourage new customers, when customers are ‘tied in’ then prices rise.
Cost-plus pricing – selling price is worked out by adding on a percentage or a specific amount
Promotional pricing – where a product is offered for sale at a discounted price for a limited time