Other Forms of Pricing

Business: Edexcel IGCSE, topic 4.3.3

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 is when a business sets its prices for its products and services based on what other firms 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 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.

What is the "mark-up" in cost-plus pricing?
If WHSmith buys a set of Sharpie pens for £5 and add a mark-up of 20%, how much will they sell them for?