Price and Promotion

This lesson covers the Price and Promotion elements of the marketing mix within AQA A-Level Business topic 3.3.4. You will study key pricing strategies — including penetration pricing and price skimming — the role of branding, and the growing importance of social media and viral marketing in promotional strategy.

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Pricing Strategies

Key Definition: A pricing strategy is the approach a business takes to setting the price of its products. The strategy should be consistent with the firm's marketing objectives, target market, and competitive position.

1. Penetration Pricing

Key Definition: Penetration pricing involves setting a low initial price to enter a market quickly, attract customers, and build market share. The price may be raised once a sufficient customer base has been established.

Aspect	Detail
Objective	Gain market share rapidly; attract price-sensitive customers; discourage new entrants
When used	Entering a new market; launching a new product in a competitive market; when economies of scale are available
Risk	Low prices may signal low quality; difficult to raise prices later without losing customers; may trigger a price war

Real-World Example: When Aldi and Lidl entered the UK grocery market, they used penetration pricing — setting prices 20-30% below established supermarkets. This attracted price-conscious consumers and built market share rapidly. By 2024, Aldi held over 10% of UK grocery market share, having grown from under 3% a decade earlier. The low-price strategy was sustained rather than temporary, but it followed the classic penetration logic of using low prices to build a customer base.

Real-World Example: Sky initially offered heavily discounted first-year subscription packages (e.g., Sky TV for £25/month rather than the full price of £50+/month) to attract new subscribers. Once customers were locked into the ecosystem — with Sky boxes installed, familiar with the interface, and enjoying exclusive content — Sky gradually increased prices, knowing that switching costs and inertia would retain most customers.

2. Price Skimming

Key Definition: Price skimming involves setting a high initial price for a new or innovative product and then gradually reducing the price over time as competitors enter the market or as the product moves through its life cycle.

Aspect	Detail
Objective	Maximise revenue from early adopters willing to pay a premium; recoup high R&D costs quickly
When used	Launching innovative or technologically advanced products; when there is limited competition initially; when the product has strong USPs
Risk	High price may limit initial sales volume; attracts competitors who undercut; may alienate price-sensitive consumers

Real-World Example: Apple consistently uses price skimming. When the iPhone 15 Pro Max launched in 2023 at £1,199, early adopters (technology enthusiasts and loyal Apple customers) paid the premium. Over time, the price was reduced as newer models were released — the iPhone 14 was discounted to make way for the 15, and older models continued to sell at lower price points. This strategy works because Apple's brand strength and product differentiation allow it to charge a premium that competitors cannot easily match.

Real-World Example: Sony launched the PlayStation 5 at £449 in 2020. The high price maximised revenue from eager gamers who had been waiting years for the new console. By 2024, bundle deals and price reductions made the PS5 available for under £400, attracting more price-sensitive consumers as the product moved from growth into maturity.

3. Other Pricing Strategies

Strategy	Description	Example
Competitive pricing	Setting price at or near competitors' prices	Petrol stations on the same road
Cost-plus pricing	Adding a fixed mark-up to the unit cost of production	A bakery adds 50% to its ingredient costs
Predatory pricing	Setting price below cost to drive competitors out of the market (illegal under UK competition law)	Alleged against Amazon in book retailing
Psychological pricing	Setting price just below a round number (e.g., £9.99 rather than £10.00)	Almost all UK retailers
Price discrimination	Charging different prices to different segments for the same product	Peak vs off-peak train tickets; student discounts
Dynamic pricing	Adjusting price in real-time based on demand, supply, and competitor behaviour	Uber surge pricing; Amazon's algorithmic pricing
Loss leader pricing	Selling a product below cost to attract customers who will buy other, profitable items	Supermarket milk at cost price; printer manufacturers selling printers cheaply and making profit on ink cartridges

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Promotion

Key Definition: Promotion encompasses all the activities a business uses to communicate with its target audience, inform them about its products, and persuade them to buy. The aim is to increase awareness, generate interest, and ultimately drive sales.

The Promotional Mix

The promotional mix is the combination of promotional tools a business uses:

Tool	Description	Strengths	Weaknesses
Advertising	Paid communication through media (TV, radio, press, online, outdoor)	Wide reach; builds awareness; creative control	Expensive; may be ignored; declining TV audiences
Sales promotion	Short-term incentives to stimulate purchase (discounts, BOGOF, coupons, competitions)	Immediate impact on sales; measurable	May devalue the brand; short-lived effect; customers may wait for promotions
Public relations (PR)	Managing the firm's reputation through media coverage, press releases, sponsorship, events	Credible (editorial coverage is trusted more than advertising); low cost per exposure	Limited control over the message; coverage is not guaranteed
Personal selling	Direct one-to-one communication between a salesperson and a potential customer	Persuasive; can tailor the message; builds relationships	Expensive per contact; time-consuming; depends on salesperson quality
Direct marketing	Communicating directly with individual consumers (email, direct mail, telemarketing)	Targeted; measurable; can be personalised	Can be perceived as spam; data protection regulations (GDPR)
Digital/social media marketing	Using online platforms to reach and engage consumers	See detailed section below	See detailed section below

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Branding

Key Definition: A brand is a name, symbol, design, or combination of these that identifies a product or business and distinguishes it from competitors. Branding encompasses the entire perception consumers have of the product — its quality, personality, values, and promise.