9609 · 3.3.4
Pricing methods — FAQ
Frequently asked questions for 9609 Pricing methods. Direct answers first, then deeper explanation — then practise with marking.
Can a business use more than one pricing method at the same time?
Yes, and it is very common. A business might use cost-plus as a starting point to establish a 'cost floor' and ensure profitability. Then, it will analyse competitors' prices (competitive pricing) and adjust its price accordingly. Finally, it might set the price at £49.99 instead of £50 (psychological pricing). The final price is often a result of blending multiple strategies.
Isn't predatory pricing just an aggressive form of competitive pricing?
While related, they are critically different. Competitive pricing is a legal strategy of setting prices in relation to rivals. Predatory pricing is an illegal practice where a dominant firm sets prices below its average variable costs with the specific intent of driving smaller competitors out of business. The key distinctions are the price level (below cost) and the anti-competitive intent, which makes it illegal in most countries.
Does penetration pricing mean the business will definitely make a loss at first?
Not necessarily. The price is low, but it is usually set above the variable cost per unit. This means each unit sold still makes a positive contribution towards covering the business's fixed costs. While overall profit for the business might be very low or even negative during the initial penetration phase, it is not guaranteed that the business is making a loss on every single item sold. It is a strategic investment for future market share and profitability.