Pricing considerations

  • Cost of production
  • Competitor’s pricing
  • Target Market
  • Markup Target
  • Overhead costs
  • Brand
  • Quality (mainly perception of quality)
  • Image
  • Stage in lifecycle

Methods, strategies, and tactics

Pricing method: The method used to calculate the actual price set

Pricing strategies: Adopted over the medium to long term to achieve marketing objectives. Have a significant impact on the marketing strategy.

Pricing tactics: Adopted in the short run to suit particular situations. Limited impact beyond the product itself.

Competitors significantly influence pricing

Price leaders set the pricing for a market - these tend to be the big businesses. Whilst smaller businesses tend to be price followers, who simply follow prices set by the leaders.

Price takers: Have no option but to charge the ruling market price Price makers: Able to fix their own price Price leaders: Market leaders whose price changes are followed by rivals Price followers: Follow the price-changing lead of the market leader

Mark up

Widely used in retail, the amount that you add to the price on top of your production costs.

Loss Leaders: A product or service sold at a loss to encourage people to enter the ecosystem of a product or service.

Benefits and drawbacks to using cost to influence price


  • Easy to calculate
  • Price increases can be justified when costs rise
  • Managers can be confident each product is being sold at profit


  • Ignores price elasticity of demand
  • May not take account of competition
  • Profit is lost if price is set below the cost of production

Price Skimming

  • Setting a high price to maximize profit
  • Works well for products that create excitement amongst “early adopters”
  • Frequently used in the technology industry
  • Product is sold to different market segments at different times, allowing for high initial profits
    • Will maximize profit per unit to achieve a quick recovery of development costs

Price Penetration

  • Setting a low introductory price
  • Opposite of price skimming
  • Aim is to
    • Gain market share quickly
    • Build customer usage and loyalty
    • Build sales of high-priced related items (“hook and bait” approach)
  • Price can be increased once a target market share is reached

Hook & Bait pricing: Selling a product for a very low price, but it requires another product to work. For example, a printer requires ink—so a company may sell a printer for a low price but then sell ink at a high price to recoup their money through people having to buy new ink.

Dynamic Pricing

Dynamic pricing is a pricing strategy in which businesses set flexible prices for products or services based on current market demands.

Amazon utilizes dynamic pricing, changing their prices on average every 10 minutes.