Pricing - factors to consider when setting price
- Levels: GCSE, AS
- Exam boards: AQA, Edexcel, OCR, IB
Pricing is often one of the most difficult things to get right in business. There are several factors a business needs to consider in setting a price:
- Competitors – a huge impact on pricing decisions. The relative market shares (or market strength) of competitors influences whether a business can set prices independently, or whether it has to follow the lead shown by competitors
- Costs – a business cannot ignore the cost of production or buying a product when it comes to setting a selling price. In the long-term, a business will fail if it sells for less than cost, or if its gross profit margin is too low to cover the fixed costs of the business.
- The state of the market for the product – if there is a high demand for the product, but a shortage of supply, then the business can put prices up.
- The state of the economy – some products are more sensitive to changes in unemployment and workers wages than others. Makers of luxury products will need to drop prices especially when the economy is in a downturn.
- The bargaining power of customers in the target market – who are the buyers of the product? Do they have any bargaining power over the price set? An individual consumer has little bargaining power over a supermarket (though they can take their custom elsewhere). However, an industrial customer that buys substantial quantities of a product from a business may be able to negotiate lower or special prices.
- Other elements of the marketing mix – it is important to understand that prices cannot be set without reference to other parts of the marketing mix. The distribution channels used will affect price – different prices might be charged for the same product sold direct to consumers or via intermediaries. The price of a product in the decline stage of its product life-cycle will need to be lower than when it was first launched.
Subscribe to email updates from tutor2u Business
Join 1000s of fellow Business teachers and students all getting the tutor2u Business team's latest resources and support delivered fresh in their inbox every morning.
You can also follow @tutor2uBusiness on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.
- Business
- Study notes
- Penetration pricing
- Competitor pricing
- Premium pricing
- Psychological pricing
- Marginal cost pricing
- Cost-plus pricing
- Pricing tactics
- Pricing strategy
- Price
- Price skimming
- Show more...
Jim Riley
Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.
Related Collections
You might also like
From the Blog
More Study notes
-
Edexcel A Level Business Grade Booster Workshops
Our Edexcel A Level Business Grade Booster workshops are designed to provide essential revision support to Year 13 Edexcel Business students as they complete their preparation for the three papers at...
-
GCSE (9-1) Business Grade Booster Workshops
Our intensive one-day Grade Booster revision workshops for GCSE (9-1) Business are suitable for Year 11 students taking either AQA or Edexcel.
Popular Content
-
BTEC National Business Unit 3 Revision FlashcardsBTEC National Business Unit 3 Revision Flashcards
- SKU: 01-4130-30042-03
-
Printed Edition
-
Student personal license
- £10.00 (+VAT)
Added to your Shopping Cart!
BTEC National Business Unit 3 Revision Flashcards
- SKU: 01-4130-30042-03
-
Printed Edition
- £10.00 (+VAT)
-
Edexcel A Level Business Calculation Practice BookEdexcel A Level Business Calculation Practice Book
- SKU: 01-4130-30090-03
-
Combined Print + Download Pack
-
Student personal license
- £7.95
Added to your Shopping Cart!
Edexcel A Level Business Calculation Practice Book
- SKU: 01-4130-30090-03
-
Combined Print + Download Pack
- £7.95
Advertise your vacancies with tutor2u
Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.