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Unlock This CoursePrice is one of the four key elements of the marketing mix (the 4Ps: Product, Price, Place, Promotion). It's the only element that generates revenue - all the others represent costs. How a business sets its prices can make or break its success in the market.
Key Definitions:
When setting prices, businesses must consider:
Price is crucial because it:
Discount pricing involves offering products or services at lower prices than the standard rate. This strategy is used to increase sales volume, clear inventory, attract new customers, or respond to competition.
Short-term price reductions to boost sales during specific periods.
Examples: Black Friday sales, seasonal clearances, back-to-school offers
Purpose: Generate excitement, increase store traffic, boost short-term sales
Price reductions offered to repeat customers or members.
Examples: Tesco Clubcard prices, Boots Advantage Card points, frequent flyer discounts
Purpose: Encourage customer loyalty and repeat purchases
Lower prices when buying in larger quantities.
Examples: Buy one get one free (BOGOF), 3 for 2 offers, bulk purchase discounts
Purpose: Increase average purchase value, clear inventory faster
Beyond the common discount types above, businesses also use these strategies:
Reducing prices during off-peak periods to maintain sales or at peak times to maximise market share.
Example: Holiday companies offering cheaper breaks outside school holidays, or retailers slashing prices during Christmas shopping season.
Offering lower prices to specific customer groups based on age, occupation, or status.
Example: Student discounts, senior citizen rates, NHS worker discounts, or family tickets at attractions.
Tesco, the UK's largest supermarket chain, introduced "Clubcard Prices" in 2019. This strategy offers significant discounts on hundreds of products exclusively for Clubcard members. The approach combines loyalty discounting with data collection - customers get lower prices while Tesco gains valuable shopping habit data to inform future marketing.
Results: Tesco added over 1.5 million new Clubcard members within the first year of launching Clubcard Prices and saw a 10% increase in customer retention among Clubcard users compared to non-members.
Variable pricing involves charging different prices to different customers for the same product or service. This approach recognises that customers have different price sensitivities and willingness to pay.
Changing prices based on time of day, week, or season.
Examples: Peak/off-peak train tickets, cinema matinee discounts, hotel seasonal rates
Purpose: Manage demand and maximise revenue across different time periods
Setting different prices in different locations.
Examples: Higher prices in London than in smaller cities, international price differences
Purpose: Reflect different costs, competition and customer willingness to pay in different areas
Continuously adjusting prices based on demand, competition and other factors.
Examples: Uber surge pricing, airline ticket pricing, Amazon's frequent price changes
Purpose: Maximise revenue by charging what the market will bear at any given moment
Premier League football clubs use variable pricing extensively. For example, Arsenal FC categorises matches into three tiers (A, B and C) based on the opposition's popularity. A match against Manchester United (Category A) might cost £95, while a game against a newly-promoted team (Category C) might be £45.
Additionally, prices vary by seating location, membership status and age group. This complex variable pricing structure allows the club to maximise revenue while still making some matches accessible to more price-sensitive fans.
Successfully implementing discount and variable pricing requires careful planning and execution. Here are key considerations for businesses:
Understanding how sensitive customer demand is to price changes is crucial. Products with high price elasticity (where small price changes cause large demand changes) are often good candidates for discount strategies.
For example, cinema popcorn has low price elasticity (people buy it regardless of price), while clothing tends to have high elasticity (sales increase significantly during discounts).
When using discount or variable pricing, businesses must clearly communicate the reasons for price differences to avoid customer confusion or perceptions of unfairness.
For example, airlines explain that early booking prices are lower and hotels clearly advertise seasonal rate differences. This transparency helps customers understand and accept variable pricing.
Businesses need to evaluate whether their pricing strategies are achieving the desired objectives. Key metrics to track include:
Netflix uses a variable pricing strategy with different subscription tiers:
This approach allows Netflix to serve price-sensitive customers with the Basic plan while extracting more revenue from customers who value higher quality or family sharing. The strategy has helped Netflix grow to over 200 million subscribers worldwide while maintaining strong profit margins.
Price is a critical component of the marketing mix that directly impacts both sales and profitability. Discount pricing and variable pricing are powerful strategies that, when used effectively, can help businesses achieve various objectives:
Remember that pricing is not just about numbers it communicates value to customers and positions products in the market. The most effective pricing strategies balance profitability with customer perception and competitive positioning.