2.2.2Price: pricing strategies (cost-plus, competitor, penetration, skimming, promotional, loss-leader, psychological); influences on pricing (technology, competition, market segments, product life cycle)

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Pricing strategies and influences

Price is the single P in the marketing mix that directly determines revenue per unit. Edexcel 1BS0 specifies six pricing strategies plus four key influences.

The six pricing strategies

1. Cost-plus pricing

Add a fixed percentage mark-up to unit cost. Simple to calculate and guarantees a margin if costs are accurate. Used by manufacturers and B2B suppliers. Limitation: ignores demand and competitor prices.

2. Competitor pricing

Set price at, slightly above, or slightly below rivals. Common in commodity markets where products are similar (petrol, supermarkets). Easy to apply but offers little differentiation.

3. Penetration pricing

Set price deliberately low to enter a market and capture share quickly. Once customers are won, price may rise. Used by streaming services launching new tiers, telecom new entrants. Risk: competitors match; perceived as cheap.

4. Price skimming

Set price deliberately high at launch to capture customers willing to pay a premium for novelty (early adopters), then lower over time. Used in technology (iPhone, gaming consoles). Requires strong USP / patent / brand.

5. Promotional pricing

Temporary discount to boost sales: BOGOF, % off, seasonal sales, flash sales, Black Friday. Risk: regular promotions train customers to wait for sales.

6. Loss-leader pricing

Sell a product below cost to attract customers who then buy higher-margin items. Supermarket bread, milk and bananas; printer manufacturers (cheap printer, expensive ink).

7. Psychological pricing

£9.99 vs £10. Anchors at the lower digit. Bundle pricing, decoy pricing. Effective on impulse and consumer goods.

Influences on pricing

Technology

Real-time price comparison (Google Shopping, PriceRunner) makes price competition more intense.
Dynamic pricing algorithms (airlines, Amazon, Uber) update prices second-by-second based on demand.

Competition

In a crowded market, scope to charge premium is limited.
A unique product (USP, patent) allows pricing freedom.

Market segments

Premium segments accept higher prices for quality/exclusivity (Gymshark, Apple).
Value segments are highly price-sensitive (Aldi, Primark).

Product life cycle

Introduction: skimming or penetration, depending on strategy.
Growth: stable, possibly slight cuts as competitors enter.
Maturity: heavy promotional pricing.
Decline: deep discounts to clear stock.

Edexcel exam tip

Identify the strategy by the scenario clues: "first to market" → skimming; "established competitors" → competitor or penetration; "supermarket bread" → loss-leader; "£9.99" → psychological. Then justify why this strategy SUITS the business stage and target market.

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Practice questions

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Question 12 marks
Pricing strategies — 2-mark identify
Edexcel 1BS0 Paper 2 style

Identify two pricing strategies a business could use.

[2 marks]
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Question 26 marks
Penetration vs skimming — 6-mark explain
Edexcel 1BS0 Paper 2 style

"NovaCharge" has invented a wireless charger 3x faster than anything on the market. The patent will protect it for 18 months. The CEO is debating whether to launch at £79 (skimming) or £29 (penetration).

Analyse the case for each strategy.

[6 marks]
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Question 39 marks
Choosing pricing for a new café — 9-mark recommend
Edexcel 1BS0 Paper 2 style

"BeanTown" is a new independent café opening in a town with 4 established competitors (Costa, Greggs, Pret, and one independent). Coffees in the area sell for £2.80–£3.50.

Recommend a pricing strategy for BeanTown. Justify your recommendation.

[9 marks]

AO1 (up to 3 marks):
- Competitor pricing matches market norms B1.
- Penetration pricing sets price below market to capture share B1.
- Loss-leader pricing uses below-cost items to drive footfall B1.
AO2 (up to 3 marks):
- BeanTown faces 4 established competitors — entering at the highest end (£3.50) would deter trial B1.
- Penetration pricing at £2.20 builds awareness and footfall but margins suffer B1.
- Loss-leader (e.g. £1 espresso) draws trial; customers may then buy food/cake at full price B1.
AO3 (up to 3 marks):
- Pure penetration risks attracting only price-sensitive customers who switch back when the price rises B1.
- A loss-leader on coffee with strong full-margin food/cake offering captures both trial AND profit per visit B1.
- Justified recommendation: combine introductory promotional pricing (e.g. "£1 espresso for first month") with normal-price food and pastries — generates trial without permanently undercutting positioning. Reposition to competitor pricing after month 1 once a customer base is established (B1 supported recommendation).
Total: 9 marks.
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Flashcards

2.2.2 — Price: pricing strategies and influences on pricing

7-card SR deck for Edexcel GCSE Business — Leaves (batch 1) topic 2.2.2

7 cards · spaced repetition (SM-2)