Cost plus (calculating mark up on unit cost)
When a retailer wants to know the gross profit margin of a sale in advance, they
might use cost-plus pricing. A benefit of this is that the retailer reduces the
uncertainty of profits, since they know costs will be covered if they can sell the good.
However, it could lead to a fall in the quantity sold, the revenues and profits and
market share of the firm since the price is uncompetitive.
This is a short term pricing strategy which is used most commonly when a new
product is launched. This is when the product has little or no competition, so a high
price is set temporarily before competitors enter the market. It is most common
where technology has changed or a product is distinctive. It is only used in the short
term, because the high profits earned in the market act as a signal to other firms to
enter the market, so competition increases.
This involves setting a low price initially, which is below the intentional price, in
order to attract customers. It aims to encourage customers to switch to this brand
since the price is low, and once consumer loyalty is gained, the price is increased
This involves firms setting low prices to drive out firms already in the industry. In the
short run, it leads to them making losses. As firms leave, the remaining firms raise
their prices slowly to regain their revenue. They price their goods and services below
their average costs. This reduces contestability.
This is when prices are set based on the prices of competitors, and it is used when
the products are similar.
This is a pricing strategy which uses the emotional and not rational reactions to the
price of a good. For example, a good might be priced at 99p rather than £1, since the
99p price tag seems a lot cheaper than the £1 price tag, even though there is only a
penny difference. Therefore, consumers might be more inclined to purchase the