The Marketing Mix: Price

Factors to consider when choosing a price:

• Cost of the Product: The price must cover the cost of production, including materials, labour, and overheads, to ensure profitability. Pricing should be set above the total cost to achieve the desired profit margin.
• Competitors' Prices: Understanding how competitors price similar products helps a business position its pricing strategy competitively. This can influence whether the business chooses to set prices higher, lower, or in line with competitors.
• Consumers/Target Market: The target market's willingness and ability to pay are crucial. Prices should reflect the perceived value to the consumer, aligning with their expectations and purchasing power.
• Legal Regulations: Businesses must comply with legal pricing regulations, such as price-fixing laws and minimum wage standards, to avoid penalties and maintain fair competition in the market. Businesses should consider these when deciding on a pricing strategy.

Common Pricing Strategies:

• Price Skimming Strategy: This strategy involves setting a high initial price for a new product to maximise profits from early adopters. The price is gradually reduced as the product moves through its life cycle and faces more competition. Examples include new iPhones or game consoles.
• Penetration Pricing Strategy: The business sets a lower price than competitors to quickly gain market share by persuading consumers to switch. An example is Bord Gáis charging 10% to 14% less than competitor ESB to attract consumers.
• Price Discrimination Strategy: Different prices are charged to different customer groups based on their willingness to pay. An example is first-class versus economy-class plane seats, where some customers pay more for extra comfort and exclusivity.
• Loss Leader: The business sells a product at a price lower than its cost to attract customers, hoping they will buy additional, more profitable products. This strategy aims to increase sales through impulse buying.
• Premium Pricing: The product is priced at or near the high end of the possible price range to attract status-conscious consumers. It enhances the product's luxury image, indicating high quality. Examples include Rolex and Cartier. These strategies help businesses achieve specific objectives, such as increasing market share, maximising profits, or enhancing brand image.

*Rolex uses a premium pricing strategy *