Price - EdexcelPricing strategies

The price of a product is how much a customer is asked to pay for it. When setting a price, a business needs to consider:

• The cost of making the product - Price represents the revenue the business receives from selling each unit of its product. If the unit cost of the product is known, setting a price that is greater than the unit cost will ensure that the product is profitable, as long as consumers are willing to pay that price.
• The quality of the product - Consumers expect to pay more for a high-quality product, as they understand that high-quality products usually cost more to make. Charging a higher price often gives the impression that a product is of a higher quality, even when it may not be.
• The brand image of the product - Maintaining a brand image requires a high level of marketing activity and a consistent level of quality. These cost money, so a branded product often has a higher price than a non-branded product.
• Thedemandand supply of a product - If there is high demand for a product, consumers are likely to be willing to pay more for it. Therefore, businesses can charge a higher price for popular products, unless there are other businesses supplying similar products. If this is the case, they will need to consider their competitors’ prices.

When deciding what price to charge, businesses must choose between two methods of pricing, known as pricing strategies:

• Pricing low in order to achieve a high volume of sales but at a lowprofit margin - This strategy is often used for generic products with little or no unique selling point (USP). For example, the manufacturers of common, everyday cars use this method to price their products.
• Pricing high while accepting there will be a low volume of sales but at a high profit margin - This strategy is often used for luxury products or products with a good USP. For example, the manufacturers of luxury cars use this method to price their products as they have strong enough brands to set high prices.