Pricing Methods

Businesses use a variety of pricing methods to determine the selling price of their products or services. The choice of method depends on factors like the product's lifecycle stage, competition, and the overall marketing strategy. Let's explore some key pricing methods:

Price Skimming

This method involves setting a high initial price for a product and then gradually lowering it over time. This is often used for new or innovative products where there is a high level of demand or limited competition. The idea is to "skim" the maximum revenue from early adopters who are willing to pay a premium. A good example is the launch of a new smartphone, where the initial price is high but gradually decreases as newer models are released.

Penetration Pricing

This method involves setting a low initial price to quickly gain market share and attract a large customer base. This strategy is often used to discourage competitors and establish a strong market presence. Budget airlines often employ this strategy, offering low fares to attract price-sensitive customers.

**Please note, for the purpose of this essay, only 2 pricing methods will be discussed. This is due to exam time constraints, and to allow for a fuller discussion of two methods, rather than a superficial discussion of more.**

Exam Tips

When answering exam questions on pricing methods:

• Clearly define each method.
• Provide relevant examples to illustrate.
• Explain the advantages and disadvantages of each method.
• Relate the pricing method to the context provided in the question (e.g., the type of product, market conditions).

By understanding these pricing methods and their implications, businesses can make informed decisions to optimize revenue and achieve their marketing objectives.

Source: Stimpson, P., and Smith, A. (2015). Business Studies for GCSE. Hodder Education