Cost based pricing is where a retailer works out the cost of selling a product and then they would add a profit margin or mark-up to it. The cost of selling it is made up of the variable cost which is mainly buying the product and the fixed cost which is the wages of the staff, the rent and the heating and the lighting This is good because it means the retailer makes a profit every time but the down side of this is that the competitor may have a lower price so your customers go to them,
Market orientated pricing is where the price charged is based upon an analysis of the market and its characteristics. An example of this is a retailer may give a special discount on their product for a limited period of time to raise sales; this might be done because sales are dropping because of a certain time of year i.e. if it is February very little Christmas Crackers would sell. A few examples of these are penetration pricing, creaming or skimming prices. This is good because it raises sales and customer loyalty.
Price discrimination is when a product is sold all over the world but selling it at different prices to the different segments of the market. A company would do this in order to raise the most profits possible. For example product may cost more in England than it would in Thailand because the British buyers are willing to payer higher prices than the people in Thailand.
Penetration pricing is when a product is when a product is released into the market, it is released at a discounted price so that it maximises early sales. A good example of this is singles, they are at a reduced price so that there are maximised sales and the single gets in the charts. If it is in the charts it is likely that it will be played more on radio and television, which will lead to further sales. The down side to this is that the consumers may not want to pay more for the long term price after they have seen the initial cheaper price.
Creaming or skimming pricing is the opposite of penetration pricing because the price of the product is set high initially but lowering it later on. This is done when a product is in massive demand because it is perhaps a new idea this is done to maximise profits initially and when the product becomes more widely available the price is lowered.
Competitor based pricing is adjusting the price to the competitor’s. This needs to be judge correctly because if the price is much more than the competitors the product will sell very little and make little profit but if the product is set to cheaply the product will sell a lot but will not get much profit.
The method I pricing I am going to use is a mixture of cost based pricing and competitor based pricing, psychological pricing this is because I will need to use cost based pricing to ensure that I make a profit and I will use competitor based pricing to make sure my product isn’t to cheap or too expensive. I decided to set the price of my business of £9.99 for all you can drink but this would be over a 2-hour period. I would have to set up a coloured band scheme, which would mean the waiters would be able to tell whether to give out drinks. I think this would be a good idea because I think this would attract my customers and it would mean I would get more profit because I would be able to get the majority of the customer’s. Compared to my competitors this pricing will be considered to be cheap because the drinks are unlimited. The reason why this would be profitable for me is because it will draw in large numbers and it is I will lose money because I did some research and I found that the average drink cost 60p to buy of a supplier so it would need a person to drink 17 drinks which his highly unlikely. They are more likely to buy about six drinks, which would give me revenue of £6.40 for each customer. In my survey me showed that the average person spends £10-£20 which means they are probable willing to pay £9.99 and are likely to see my price as cheap, this is called customer value pricing. I chose to use £9.99 rather £10 because it appeals to the customer as more value for money this is psychological pricing. I think introducing food would be a good idea. It wouldn’t be any thing heavy just snacks like chips and crisps I would be able to generate extra income and I would be able to exploit the customer by raising the price because there would be no where else to get this food. I will offer chocolate bars at 50p, crisps at 50p, chips at £2, burger and chips at £4 and salad at £2.
