IGCSEBusinessEdexcelRevision Notes4. MarketingThe Marketing MixPricing Strategies

Pricing Strategies (Edexcel IGCSE Business): Revision Note

Exam code: 4BS1

Written by: Lisa Eades

Reviewed by: Steve Vorster

Updated on 23 June 2025

Common pricing strategies

A pricing strategy is the approach businesses use to determine what prices they should charge customers for their products
Choosing the right pricing strategy is essential for a business to be profitable, competitive and successful in the long run
- Price can play a significant role in the market positioning of the brand and help a firm compete with rivals

The main pricing strategies

Diagram showing pricing strategies: cost plus, skimming, penetration, promotional, and competition, with arrows pointing to a central box. — **Businesses can choose from a range of pricing strategies to suit the products they sell and the customers at which they are aimed**

Different types of pricing strategies

Pricing strategy	Explanation	Advantages	Disadvantages
Cost plus	The business calculates the cost of production and then adds a markup to determine the final price The markup covers the cost of production plus the business's desired profit margin This pricing strategy is commonly used by manufacturers that produce standardised goods e.g. washing machines	A simple and quick methods of calculating a price for a product It ensures that a profit is made on each item sold	It does not consider the needs of the market The pricing approach of competitors is ignored
Skimming	The business sets a high price for a new product when it is first introduced to the market The business will then gradually lower the price to ensure sales continue Skimming should not be confused with premium pricing, where a permanently high price gives customers an impression of high quality and luxury	This is effective when an established brand is introducing a new product and there is a high demand for it e.g successive models of Apple's Macbook Air The high price helps the business to recover its development and marketing costs quickly	Less useful for new brands as it requires significant customer trust Loyal customers may become tired of paying high prices for new product versions and look to see what competitors offer
Penetration	The business sets a low price for a new product/service when it is first introduced This helps to quickly capture market share and attract price-sensitive customers e.g. many new perfumes launch using penetration pricing Once they have enough customers, the business will start to raise the price	Customers are attracted to buy the product at a low price leading to high sales volume and market share Competitors unable to match or beat the low price are forced out the market leading to less competition	Customers may perceive that the product is of low quality if the product is sold at a low price Selling at a low price limits the amount of profit made
Competition	The business sets its prices based on its competitors' prices	This is effective when a business is in a highly competitive market and wants to maintain its market share	The business must continually monitor its competitors' prices and adjust its prices accordingly to remain competitive
Promotional pricing	This pricing strategy takes into account the customer's emotions, and compulsive behaviours in responding to price promotions E.g. a business may have a Bogof offer - buy one get one free	Generates high volumes of sales for a limited period Can be a useful tool to catch the attention of customers	Profit margins are likely to be lower during price promotions Customers may be unwilling to pay a higher price once a price promotion comes to an end

Examiner Tips and Tricks

In the exam, you could be asked to choose between two pricing strategies for a business and justify which would be most appropriate. You should consider factors such as

The nature of the product - E.g. Is it a necessity or a luxury?
Competitors' prices - especially if competition is fierce
Stage in the product life cycle - E.g. Newly-launched products may be suited to promotional pricing to attract customers
What is hoped to be achieved - E.g. High profits may be achieved through price skimming, whilst penetration pricing is more appropriate to gain market share

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