What is cost plus pricing?

A pricing method that involves adding a percentage mark-up to the unit cost of production to determine the selling price.

Calculate the mark-up percentage when unit cost = £36, selling price = £198.

Mark-up percentage = ((198 − 36) ÷ 36) × 100 = 450 %.

Define price skimming as a pricing strategy.

Setting a high initial price for a new or innovative product and then gradually lowering it over time.

What is penetration pricing?

Setting a low initial price to gain market share quickly, with the intention of raising prices once the product is established in the market.

Define predatory pricing.

Setting prices very low, often below cost, with the intention of driving competitors out of the market.

Explain why predatory pricing differs from simply having low prices.

Predatory pricing specifically involves setting prices below cost with the deliberate intention of eliminating competitors, rather than simply offering competitive value.

Edexcel A-Level Business 9BS0

Meeting Customer Needs

Topic overview The market Market research Market positioning

The Market

Topic overview Demand Supply Markets Price elasticity of demand Income elasticity of demand

Marketing Mix and Strategy

Topic overview Product/service design Branding and promotion Pricing strategies Distribution Marketing strategy

Managing People

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Entrepreneurs and Leaders

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Raising Finance

Topic overview Internal finance External finance Liability Planning

Financial Planning

Topic overview Sales forecasting Sales, revenue and costs Break-even Budgets

Managing Finance

Topic overview Profit Liquidity Business failure

Resource Management

Topic overview Production, productivity and efficiency Capacity utilisation Stock control Quality management

External Influences

Topic overview Economic influences Legislation The competitive environment

Business Objectives and Strategy

Topic overview Corporate objectives Theories of corporate strategy SWOT analysis Impact of external influences

Business Growth

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Decision-Making Techniques

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Assessing Competitiveness

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Managing Change

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Globalisation

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Global Markets and Business Expansion

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Global Marketing

Topic overview Marketing Niche markets Cultural/social factors

Global Industries and Companies

Topic overview The impact of MNCs Ethics Controlling MNCs

Marketing Mix and Strategy

Pricing strategies

4 things to know
Paper 1 and Paper 3

Overview

Cost-plus, penetration, skimming, predatory, competitive and psychological pricing, and how elasticity, competition and the product life cycle decide which fits.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

What is predatory pricing, and how does competitive pricing differ?

Process

How do elasticity and competition shape pricing strategy?

Process

How does pricing change across the product life cycle?

Numbers

When is penetration pricing most appropriate as a strategy?

Questions from this subtopic

Each one with the model answer underneath.

1
What is cost plus pricing?
Model answer
A pricing method that involves adding a percentage mark-up to the unit cost of production to determine the selling price.
2
Calculate the mark-up percentage when unit cost = £36, selling price = £198.
Model answer
Mark-up percentage = ((198 − 36) ÷ 36) × 100 = 450 %.
3
Define price skimming as a pricing strategy.
Model answer
Setting a high initial price for a new or innovative product and then gradually lowering it over time.
4
What is penetration pricing?
Model answer
Setting a low initial price to gain market share quickly, with the intention of raising prices once the product is established in the market.
5
Define predatory pricing.
Model answer
Setting prices very low, often below cost, with the intention of driving competitors out of the market.
6
Explain why predatory pricing differs from simply having low prices.
Model answer
Predatory pricing specifically involves setting prices below cost with the deliberate intention of eliminating competitors, rather than simply offering competitive value.

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