Syllabus: Pearson Edexcel AS Business
Module: Marketing Mix and Strategy
Lesson: 1.3.3 Pricing Strategies

Introduction

This lesson on Pricing Strategies is part of Theme 1: Marketing and People, within the Pearson Edexcel AS Business qualification. It builds directly on students’ understanding of market research, demand, supply, and branding – bringing the focus onto the crucial decisions businesses make when setting prices.

Understanding pricing strategies isn’t just about memorising definitions. It’s about grasping how pricing fits within the wider marketing mix and how it can be used as a tactical and strategic lever to influence demand, generate revenue, and signal brand positioning. This lesson underpins AO1 (knowledge and understanding) and AO2 (application) while regularly crossing into AO3 (analysis) and AO4 (evaluation) when students critique strategies in context.

Key Concepts

From the syllabus (1.3.3), students are expected to understand and evaluate a range of pricing strategies:

• Cost-Plus Pricing: Adding a fixed mark-up to the cost of producing a product. Simple and ensures profit, but ignores market demand and competitor pricing.
• Price Skimming: Charging a high price initially, then lowering it over time. Used for innovative products with early adopters. Maximises early profit but risks alienating price-sensitive customers.
• Penetration Pricing: Introducing at a low price to gain market share quickly. Encourages trial but may undervalue the product or lead to price wars.
• Predatory Pricing: Setting prices below cost to drive out competitors – illegal if proven. Requires deep pockets and involves high risk.
• Competitive Pricing: Setting prices in line with rivals. Useful in highly competitive markets but may limit margin flexibility.
• Psychological Pricing: Using pricing to create a perception of value (e.g. £9.99 instead of £10). Subtle but effective in consumer behaviour manipulation.

Students should also link these strategies to:

• Price Elasticity of Demand (PED)
• Business objectives (profit, market share)
• Product lifecycle stage
• Market conditions (e.g. competition, regulation)

Real-World Relevance

Businesses rarely choose a pricing strategy in isolation. Current examples include:

• Netflix: Originally used penetration pricing to disrupt traditional broadcasters. Now moving toward premium pricing as it builds brand loyalty and exclusivity through original content.
• Tesla: Known for price skimming when launching high-spec models. The firm later broadens market access with more affordable options, allowing it to scale while maintaining premium brand perception.
• Greggs: Uses psychological and competitive pricing strategies – keeping prices just under round numbers and matching local competitors, especially on lunch items.
• Spotify vs Apple Music: A live case of competitive and psychological pricing, where pricing is key to loyalty, acquisition, and perceived value across similar offerings.

How It’s Assessed

Students will encounter pricing strategy questions in Paper 1, under the Marketing and People theme. Typical assessment formats include:

• Short-answer and data-response questions:
  • “Explain one reason why a business might use penetration pricing.” (AO1 + AO2)
  • “Analyse the risks of predatory pricing for a new entrant in the market.” (AO3)
• Essay-style responses requiring evaluation:
  • “Evaluate the effectiveness of a skimming strategy for a new tech product.” (AO1–AO4)

Command words to look out for:

• Explain – outline reasoning or logic
• Analyse – break down implications or consequences
• Evaluate – make a judgment supported by evidence

Past papers show regular integration of pricing with other 4Ps – students may be asked to link pricing to branding, distribution, or promotion.

Enterprise Skills Integration

This lesson touches several core enterprise skills:

• Decision-Making: Choosing the right pricing strategy depends on understanding PED, customer expectations, and market structure.
• Problem-Solving: Students assess pricing in constrained conditions (e.g. limited budget, market saturation).
• Communication: Justifying a pricing strategy to stakeholders requires clarity, confidence, and commercial awareness.

Use this with MarketScope AI: Students can model different pricing strategies and see how changes in price affect demand and revenue projections in simulated markets.

Careers Links

Understanding pricing strategies directly supports:

• Marketing Manager: Pricing strategy is central to brand positioning and revenue targets.
• Business Analyst: Pricing data informs strategic choices and performance reviews.
• Entrepreneur: Every start-up must determine a pricing approach that aligns with value proposition and cash flow.

This also supports Gatsby Benchmark 4 (linking curriculum to careers) and Benchmark 2 (learning from career and labour market information), especially when tied to local business examples or guest speakers.

Teaching Notes

For Teachers:
This lesson often goes one of two ways – either students grasp the strategic significance quickly or get stuck in surface-level definitions. The key is applying the strategies to scenarios.

Suggested Activities

• Scenario Challenge: Give students different business types (start-up app, luxury clothing brand, budget airline). Ask them to recommend and justify a pricing strategy.
• Strategy Speed-Dating: Each table presents one pricing strategy and its pros/cons. Students rotate to debate which strategy best suits a given case study.
• Data Dive: Show graphs on demand curves. Ask: What happens to revenue when price increases in elastic vs inelastic markets?

Stretch Tasks

• Explore how pricing strategy shifts at different stages of the product life cycle.
• Debate: Is psychological pricing manipulative or just smart business?

Common Pitfalls

• Confusing cost-plus with competitive pricing.
• Forgetting that penetration pricing can devalue a product if not carefully reversed.
• Struggling to apply PED to real decisions – consider pairing with a refresher.

Tips from Empathy Map Insights

• For time-poor teachers: This topic pairs well with flipped learning (pre-lesson videos or articles on real-world pricing tactics).
• For careers leads: Use pricing discussions to highlight budgeting, customer insight, and pricing software skills as career-relevant capabilities.
• For SLT and heads: Pricing strategy work lends itself to cross-curricular links with maths (percentages, elasticity), media (branding), and PSHE (consumer awareness).