Discuss Factors Affecting Product Pricing Ih the Uk

1186 Words5 Pages
Discuss factors affecting product pricing in the UK. Product pricing in the UK is dependent on several factors. Market structures such as monopoly and oligopoly play a major part in setting price. Market structures can then influence the objectives and behavior within a firm (Sloman & Wride, 2009). This can lead to the use of different pricing strategies, thus having varied effects on the level of price set. Traditional theory suggests that a firms’ main objective is profit maximization. Therefore, prices will be set in line to meet this objective. A monopoly is defined as one dominant firm in the industry. In theory, a monopoly will have inelastic demand due to no available substitutes. Therefore the firm will be a “price maker”.…show more content…
However in the long run oligopolies tend to indulge in non-price competition. One form of non- price competition is advertising. For example in 2009 Tesco spent £104.6 million, Asda spent slightly less at £98.7 million and Sainsbury’s spent £59.1 million. Advertising allows companies to product differentiate from competitors and attract customers to their unique products. This in turn can make demand more price inelastic. Thus in the long run companies have more control over price and have the ability to raise it. Moreover, in practice products tend to go through three phases: growth, maturity and decline. At each phase, a different pricing strategy can be used to determine price. In the growth phase of a product, new firms’ are likely to use a price penetration strategy (Redmond, 1989). This is where prices are deliberately set low to gain foothold in the market. Therefore firms’ can attract customers to the product and over time as the firm becomes more established, it is able to raise prices. However incumbent firms’ can also reduce prices as a way to maintain their own market share in competitive markets. As the product transcends from growth to maturity, the pricing strategy may change to price skimming. Price skimming can allow a firm to charge a high initial price and as competition increases, firms’ have the ability to remain price competitive by gradually decreasing price. In the last phase of decline, profit maximizing firms’ may

More about Discuss Factors Affecting Product Pricing Ih the Uk

Open Document