💲 Price — the second P
Big Idea: Price is what the customer pays for the product. It's the only P that directly generates revenue — all the others cost money! Getting the price right is crucial. 💰
Factors affecting pricing decisions
- Costs — the price must cover costs to make a profit
- Competitors — what are rivals charging?
- Demand — how much are customers willing to pay?
- Brand image — premium brands can charge more
- Product life cycle stage — new products may be priced differently to mature ones
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🏷️ Pricing strategies
- Cost-plus pricing — add a percentage mark-up to the cost of making the product
- Penetration pricing — set a LOW price at launch to attract customers, then raise it later
- Price skimming — set a HIGH price at launch (for early adopters), then lower it over time
- Competitive pricing — match or slightly undercut competitors' prices
- Loss leader — sell one product at a loss to attract customers who then buy other items
- Premium pricing — keep prices permanently high to reflect quality or exclusivity
- Dynamic pricing — prices change based on demand, time or customer (e.g. surge pricing)
Remember: 'Clever Prices Please Customers, Lose Problems, Deliver!' — Cost-plus, Penetration, Price skimming, Competitive, Loss leader, Premium, Dynamic! 🧠
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🤔 Choosing a pricing strategy
- New to the market and need customers fast? → Penetration pricing
- Innovative product with no competition? → Price skimming
- Many competitors selling similar products? → Competitive pricing
- Premium brand with loyal customers? → Premium pricing
- Need a simple, reliable method? → Cost-plus pricing
Exam tip: Always explain WHY a pricing strategy suits the specific business. Don't just describe the strategy — apply it to the case study.