Pricing Decisions & Price Penetration

Pricing Methods - Price Penetration

Price penetration is where a business tries to increase market share by offering a low initial price. Loss leaders work in a similar way to price penetration.

Lower short-term profits

In the short term, price penetration can lead to lower average profits than would be earned with a higher price.
However, market share may be more important for the long-term profitability of a business.

Loss leaders

Loss leaders are products or services that are sold by a business at a price where the business makes a loss (average revenue < average cost).
Loss leaders can attract new customers or sell to existing customers, in the hope that they make extra (incidental) purchases.
- Dollar Shave Club offered to deliver a razor and new razor blades to your house for $1 every month. This was loss making, but it attracted customers who bought extra products.

Pricing Methods - Competitive and Cost-Plus Pricing

There are 2 other forms of pricing that you need to know about: competitive pricing and cost-plus pricing.

Competitive pricing

Competitive pricing is when a business sets its prices for its products and services based on what other businesses in the market are charging.
Competitive pricing is used when the products in a market are similar.
The petrol sold at petrol stations is usually based on competitive prices. In February 2018, all the petrol stations within 3 miles of Derby city centre were charging 121.9p per litre of petrol.

Cost-plus pricing

Cost-plus pricing is a pricing strategy where a business charges the customer based on what it costs to produce the product or service.
They work out exactly what it costs to produce the product (or service) on average and then add a “mark-up” (extra amount) on top of this cost to make sure that the business makes a gross profit.
- For example, if Kwik Fit bought a Dunlop tyre from its suppliers for £80, then if they added a 25% mark-up, then the tyre would be sold to customers for £100.

1Exploring Business

2Marketing Campaigns

2.1Marketing

2.1.1Setting Marketing Objectives

2.1.2Customer Needs

2.1.3The Market

2.1.4Competition & The Market

2.1.5Consumer Behaviour

2.1.6Market Research

2.1.7Forms of Market Research

2.1.8Market Segmentation

2.1.9Cultural & Social Factors in Marketing

2.1.10Promotional Decisions 3

2.1.11Pricing Strategies

2.2Marketing Mix

2.2.1Marketing Mix

2.2.2Product Life Cycle

2.2.3Pricing Decisions & Price Skimming

2.2.4Pricing Decisions & Price Penetration

2.2.5Promotional Decisions

2.2.6Promotional Decisions 2

2.2.7Promotional Decisions 3

2.2.8Market Mapping

3Business Finance

3.1Sources of Finance

3.1.1Internal Finance

3.1.2External Finance

3.1.3External Finance 2

3.1.4Sources of Business Finance

3.2Financial Planning

3.2.1Revenue

3.2.2Costs

3.2.3Cash & Cash Flow

3.2.4Cash & Cash Flow 2

3.2.5Break-Even Analysis

3.2.6Profits

3.3Financial Statements

3.3.1Balance Sheets

3.3.2Income Statements

3.3.3Liquidity

4International Business

4.1Globalisation

4.1.1Growing Economies

4.1.2Specialisation & Trade

4.2International Business

4.2.1Internationalisation

4.2.2International Trade

4.2.3MNCS

4.2.4Conditions that Prompt Trade

4.2.5Assessment of a Country

4.3International Economic Environment

4.3.1Globalisation

4.3.2Factors Contributing to Globalisation

4.3.3Protectionism

4.3.4The EU & the WTO

4.3.5Trading Blocs

4.4Factors Affecting International Business

4.4.1Global Competitiveness

4.4.2Ethics of Global Business

4.4.3Controlling MNCs

4.4.4Cultural & Social Factors in Marketing

5Principles of Management

5.1Management & Leadership

5.1.1Managers

5.1.2Management Theories

5.1.3Managing Organisational Culture

5.1.4Management Style

5.2Theories of Motivation

5.2.1Motivating & Engaging Employees

5.2.2Taylor's Theory

5.2.3Mayo's Theory

5.2.4Maslow's Theory

5.2.5Herzberg's Theory

5.3Managing Change

5.3.1Change

5.3.2Key Factors in Change

5.3.3Scenario Planning

5.3.4Managing Change

5.3.5Managing Strategic Implementation

6Business Decision Making

6.1Business Principles & Practices

6.1.1Influences in External Environments

6.1.2Product Decisions

6.1.3Competitive Environment

6.1.4Corporate Strategy

6.1.5Quantitative Sales Forecasting

6.1.6Legislation

6.2Quality Management

6.2.1Importance of Quality

6.2.2Measuring Quality

6.2.3Total Quality Management

6.2.4Evaluating TQM

6.3Human Resources

6.3.1Contracts

6.3.2Recruitment

6.3.3Training a Workforce

6.4Documents & Business Decisions

6.4.1Sales Forecasts

6.4.2Managing Strategic Implementation

6.4.3Problems with Strategy

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