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Marketing

Pricing

2.1 Setting prices

Pricing should be determined with reference to four factors:

 Cost: need to ensure that all costs are covered

 Customers: need to consider how customers will react to a change in price
and how much they are willing to pay

 Competitors: pricing can be used as a competitive strategy to reflect areas
such as differentiation or a low cost strategy

 Corporate objectives: pricing may change as different objectives are set
(such as breaking into a market or convincing rivals to leave the market).

2.2 Calculating selling prices

There are two ways in which selling prices may be calculated:

 cost based pricing: using techniques such as absorption or activity based
costing (the problem with this approach is that it ignores 3 of the 4 C’s above)

 using economic based assumptions: this assumes that demand goes up as
prices go down and vice versa (the problem with this approach is that demand
is affected by other factors such as the PESTEL elements or other areas of the
marketing mix).

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