Business Studies - Price Pricing strategies and formulas are included and explained. This includes market-orientated pricing such as Going rate pricing, psychological pricing, market penetration, market skimming, loss leader pricing and destroyer pricing and cost-based pricing such as cost plus pricing, full cost pricing and contribution pricing

1. Pricing
Business Studies
(A Level)

2. A business that accepts the
price set by the market.
(Definition)

3. The business products what the
market wants, therefore, the
business sets a price that the
market is willing to pay.
(Definition)

4. A business will set a price based
on the costs of producing and
supplying the product.
(Definition)

5. Market –
Orientated Pricing
Market
Penetration
Psychological
Pricing
Market
SkimmingLoss
Leader
Pricing
Destroyer
Pricing
Going
Rate
Pricing

6. A business will accept the current pricing
structure in the market. These businesses
are known as ‘Price Takers’.

7. The policy of pricing goods just a little below
a round figure, this tactic is hoped to
convince potential buyers that they are
getting value for money.
E.G. £19.99

8. Products are priced at a low price so that retailers
and consumers are encouraged to purchase in large
quantities. This strategy helps build brand loyalty,
however, if the price is too low, consumers may
think it is of bad quality.
This strategy shouldn’t be used if the
product life cycle is short as there is not
enough time to cover costs and make
profits.

9. A business will charge a higher price for a limited time to
maximise profits. This is usually for new products while
they are unique to the market.
E.G. IPhone
The ability to use the skimming strategy depends on a business having a
technological advantage or a brand image advantage.
Technological Advantage Brand Image Advantage
Early adopter consumers
will be willing to purchase a
product at a high price, so
that they can own it first.
Brands such as Armani or
Chanel will be at the top of
the market price band.

10. This strategy involves selling a product at a loss,
with the expectation of attracting customers and
generate profit elsewhere in the business.
E.G. a supermarket may sell bread at a
loss to attract customers where they
will sped money on other products in
store too.

11. This strategy involves setting a price low
enough to drive competitors out of the market.
Destroyer pricing is often seen as anti-
competitive and therefore illegal.

12. Cost – Based
Pricing
Contribution
Pricing
Cost
Plus
Pricing
Full Cost
Pricing

13. A profit percentage is added to the average cost
of producing the product. This is also known as
adding a ‘Mark-Up’. It helps make a desirable
profit but the actions of competitors are ignored.
For Example: COST= £1
MARK UP =40%
SOLD FOR = £1.40

14. This is similar to cost-plus pricing, however,
all costs are taken into consideration.

15. The price is based on variable costs plus a
contribution towards profits and overhead. This
method can give flexibility because orders can be
accepted on a different contribution basis for
different products.

16. Costs
Objectives
Marketing Mix
Competition
Demand
Consumer Perception
Market Segment
Laws and Regulations

17. Inelastic -
Demand doesn’t change much when price changes
E.G. Petrol, Whether the price of petrol increases or
decreases, people will still need and buy it.
Elastic -
Price Increase = Low Demand
Price Decrease = High Demand

18. Percentage (%) Change in Demand
Percentage (%) Change in Income

19. Change in Price
Original Price
X 100