Good morning everyone. Today we are going to talk about one of the most important parts of the marketing mix — Pricing.
Pricing is not just about putting a number on a product. It affects how much profit a business makes, how customers see the product, and how the business competes in the market. A smart pricing decision can attract more customers, beat competitors, and even create a strong brand image.
Businesses use different pricing methods depending on their goals. Some want to earn quick profits, others want to attract customers or stay competitive. Let’s go through the main methods one by one, using simple examples so you can easily understand them.
Let’s start with Competitive Pricing. This is when a business sets its prices based on what its competitors are charging. The goal is to stay attractive to customers without losing market share. You often see this in supermarkets or petrol stations, where prices are quite similar. For example, if one petrol pump lowers its price slightly, nearby stations usually do the same to avoid losing customers.
Next is Penetration Pricing. This means starting with a low price to enter a market and attract customers quickly. Once people start buying and the business builds loyalty, prices may increase later. A good example is Disney+, which started with a lower subscription price compared to Netflix to attract users when it first launched. This method is great for new products in competitive markets.
Now let’s look at Price Skimming. This is almost the opposite of penetration pricing. Here, a business starts with a high price for a new or innovative product and then gradually lowers it over time. The idea is to earn high profits from early buyers who are willing to pay more. For example, Apple often does this with new iPhones — the newest model starts expensive, and older models become cheaper later.
Then we have Price Discrimination. This happens when a business charges different prices for the same product, depending on the customer or situation. The goal is to make as much profit as possible from different customer groups. Airlines are a perfect example — they charge different fares for the same route based on when you book, how flexible your ticket is, or if you are a student.
Next is Dynamic Pricing. This is when prices change frequently based on demand, time, or customer behaviour. Technology makes this possible today. For instance, Uber uses dynamic pricing. During rush hours or bad weather, prices go up because demand is high. This helps balance supply and demand.
Then comes Cost-Based Pricing. This is one of the simplest methods. The business calculates how much it costs to make a product and then adds a profit margin on top. For example, if a chair costs $40 to make and the company wants a 25 percent profit, it will sell it for $50. This method ensures that costs are covered and profits are made.
Finally, we have Psychological Pricing. This is when businesses use prices that look more appealing to customers. For example, setting a price at $9.99 instead of $10.00 makes it seem cheaper, even though the difference is only one cent. It plays on customer perception and can encourage more sales.
So, to sum up, there are many ways businesses can set their prices — some focus on costs, some on competition, some on customer psychology, and others on market conditions. The key is to choose the method that matches the company’s goals and the type of product they are selling.
Before we finish, let’s quickly go over what we learned today.
Pricing is a key part of marketing. Businesses can use methods like competitive pricing, penetration pricing, price skimming, price discrimination, dynamic pricing, cost-based pricing, and psychological pricing. Each method has its purpose, advantages, and examples.
