2.5 The Marketing Mix: Price

Price is part of the marketing mix

Price is what a customer pays for a product and one of the 4 Ps (Product, Price, Place, Promotion). Setting price affects revenue, profit, and how consumers perceive value. Businesses must balance covering costs with staying competitive and appealing to their target market.

Pricing strategies

Penetration pricing sets a low initial price to quickly gain market share. Price skimming sets a high initial price to maximize profit from early adopters before lowering it. Competitive pricing matches or slightly undercuts rivals. Value-based pricing charges based on perceived customer value rather than just cost.

Cost, demand, and price adjustments

Cost-plus pricing adds a markup to production costs to ensure profit. Prices also respond to supply and demand: high demand with low supply raises prices, and vice versa. Businesses use tactics like discounts, markdowns, and psychological pricing ($9.99 instead of $10) to influence buyer behavior.

Key terms

Penetration pricing

Setting a low initial price to attract customers and quickly gain market share.

Price skimming

Setting a high initial price to maximize profit from early adopters, then lowering it over time.

Cost-plus pricing

Adding a fixed markup to production costs to determine the selling price.

Value-based pricing

Setting price based on the perceived value to the customer rather than just cost.

Psychological pricing

Pricing strategy (like $9.99) designed to make a price seem more attractive to consumers.

Try an AP-style question

Penetration pricing means…

1. matching every competitor
2. pricing based only on cost
3. setting a low price to gain share
4. setting a high price at launch