Task 1(c) Marketing Mix- Price 


Pricing is an important planned issue because it is related to product positioning. Also, pricing affects other marketing mix elements such as promotion, product features, and channel decisions.

The importance of price in the marketing mix differs. In low cost, old markets price can be very important, for instance, in the sale of white mix and gloss paint. However, in modern markets, such as clothing, it could be one of the least appropriate issues. Certain products are designed to equal a particular section. For consumers with limited budgets, price is a major- purchasing condition, whereas for those to whom money is no object price is less important. The opening pricing task is to form a general price target for an organisation which is in line with the marketing aims, and then decide objectives for each of the product lines.

Penetration pricing

Penetration pricing is the pricing method of setting a fairly low initial entry price, a price that is often lower than the general market price. The expectation is that the first low price will secure market acceptance by breaking down existing brand loyalties. Penetration pricing is most commonly linked with a marketing aim of increasing market share or sales volume, rather than short term profit maximization. The advantages of penetration pricing are that it creates cost control and cost decrease pressures from the start, leading to better efficiency; it also can reach high market penetration rates quickly. However, one of the main advantages is that it creates long term price expectations for the product; meaning that it makes it difficult to eventually increase the prices. The reason for this is because many customers will complain about increasing the price of the product.

As the price starts low, even though a product will be developing market share, the product may at first make a loss until consumer awareness is increased. For instance, a new breakfast cereal or a product being launched in a new abroad market would be launched with a relatively low price, joined with discounts and special offers. As the product penetrates the market, sales and success increases and prices then creep upwards.  


Skimming involves charging a quite high price for a short time where a new or much-improved product is launched onto a market. Consumers will probably have little knowledge of the product. Once the first group of customers has been pleased and happy, the seller can then lower prices in order to make sales to new groups of customers. By working in this way, the business removes the risk of under pricing the product. One of the advantages is that where a highly new product is launched, research and development costs are likely to be high, as are the costs of introducing the product to the market via promotion, advertising etc.

Cost-plus pricing

Cost-plus pricing is a pricing method used by companies. The method agrees on the price of a product or service that uses direct costs, indirect costs, and fixed costs whether related to the production and sale of the product or service or not. It is used primarily because it is easy to calculate and requires little information. There are several ranges, but the common one in all of them is that one first calculates the cost of the product, and then includes an additional amount to represent profit. It is a way for companies to calculate how much profit they will make; for example if an organisation produces 800 units at a total cost of £24,000, the unit cost will be £30. The process of cost-plus pricing can best be shown in relation to large organisations where economies of amount can be spread over a large range of output. For a large organisation, until costs will fall rapidly at first as the heads are spread over a larger output. It is therefore a quite simple calculation to add a fixed margin, example 20% to the unit cost. The organisation is able to select an output to produce and to set a price that will be 20% higher than the unit costs of production. Although cost-plus pricing is very popular, there are many dangers related with it. If the price is set too high, sales may fall short of expectations and if the price is set too low, then potential income is given up. However, the greatest danger of cost-based pricing is that it indicates a production-orientated approach to the market; meaning that it is an  to business that centres its activities on producing .

Importance on costs leads to tunnel vision that looks within at the customer’s awareness of the product. One of the advantages is that it’s easy to calculate and the Price increases can be necessary when costs rise.

Psychological pricing 

Psychological pricing or price ending is a marketing practice based on the theory that certain prices have a psychological impact. Many businesses use a psychological method in pricing their product or service; sometimes unknowingly. It's an effective strategy because buyers use price as a measurement of quality: to buyers, high price equals high quality or high value, and low price equals low value.

If the right pricing strategy is used for the product and for the market, and supports that strategy with strong promotional and placement programs, sales could be increased and the business will grow. But if the wrong pricing strategy is picked, it can be a costly mistake. Another use of psychological pricing is reference price. Reference pricing is when buyers have a psychological response to the price that reflects the way they view a price's relationship to a specific product.

Destroyer pricing

Destroyer pricing could be referred as predatory pricing. This is the practice of selling a product or service at a very low price, intending to force competitors out of the market, or create barriers to entry for possible new competitors.

Captive pricing

The pricing of supplies, such as razor blades, staples, computer software, or camera film, which cannot be used without a companion product. Often producers of these products will use a product mix pricing strategy wherein they will set a low price on the companion product with a high mark-up on the supplies. Captive market is the potential consumers in an area where there are no competitive sources for products, and the only choices are to purchase what is available or to make no purchase at all. Generally a captive market is the victim of higher product pricing. Hotel shopping arcades, airport restaurants, and sports arenas are examples of captive-market environments.




Marketing is the process by which companies create customer interest in goods or services. It generates the strategy that underlies sales techniques, business communication, and business development. Direct distribution methods include your providing your products and services directly to your customer. Direct methods are, for example, direct mail, retail, catalogs, or even over the Internet. Place represents the location where a product can be purchased. It is often referred to as the distribution channel. It can include any physical store as well as practical stores on the Internet. Place is not exactly a physical store where it is available Place is nothing but how the product takes place or create image in the mind of customers. It depends upon the view of customers.

Place can mean one of the two things: 1) The place where customers can buy the product 2) how the product is distributed to shops, such as M&S.  

The place element within the marketing mix provides the basic structure for customers needs to be satisfied. For instance, physical distribution involves getting a product from A to B which is an important part of the place process; this allows manufacturers and distributors to provide goods for customers at the right time, in the right place and in the necessary condition.

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In order to market your service, it is important that you tailor your efforts to a particular group of the population so that the people seeing your product/service will be the most likely to buy it. So it is very important that you first clearly identify who your customers are. This is not to say that people not in your target market will not buy your product-it is quite to the contrary. If you have a good product, the chances are high that almost anyone could be interested in it. However, your success will be greater if you market ...

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