How much a business expects customers to pay for their product
Any offers/discounts
RRP (Recommended Retail Price)
Linked to PED
Key influences on price:
Costs of production
Target market
Competition
Marketing objectives
Level of demand
PED
Type of strategy
Pricing strategy
Description
Cost-based
Cost+
"Bottom-line" + extra
Contribution
Contribution towards fixed costs
Demand-based
Price Skimming
Charging higher price at first.
Penetration Pricing
Set a low price to gain a foothold in the market.
Dynamic Pricing
Businesses set flexible prices based on current market demand.
Competition-based
Premium Pricing
Setting prices higher than competitors to create exclusivity.
Going-rate Pricing
Setting your price in line with what your competitors are charging.
Discount Pricing
Temporarily reducing price to boost sales or attract new customers.
Real-World Case Studies
Ryanair — penetration pricing built into the whole business model
Ryanair has built its entire business model around extremely low headline "penetration" fares to win passengers from legacy airlines, then makes a significant share of its revenue from optional extras — seat selection, baggage, priority boarding and onboard sales. This shows penetration pricing isn't only a short-term launch tactic (as the textbook definition suggests); Ryanair has sustained a low headline-price strategy for decades, relying on ancillary revenue and tight cost control rather than the base ticket price to stay profitable, which distinguishes it from a business that plans to raise prices once it has built a customer base.
Source: verified via search, September 2026 — widely reported UK and European aviation industry coverage of Ryanair's low-fare, ancillary-revenue business model.
Pricing transparency backlash — Oasis's 2025 reunion tour tickets
When Oasis's 2025 reunion tour tickets went on sale, many fans queued for hours on Ticketmaster only to end up paying more than double the advertised price — some paying £355.20 for a ticket listed at £148.50 — which triggered a UK Competition and Markets Authority investigation. Interestingly, the CMA's investigation found no evidence that demand-based dynamic pricing had actually been used in that sale; the real problem was that Ticketmaster sold standard tickets at two different, undisclosed prices and sold "platinum" tickets at nearly two-and-a-half times the standard price without explaining they offered no extra benefits. Ticketmaster has since committed to clearer pricing. This is a useful lesson in itself: the backlash shows that even the appearance of unclear or unfair pricing can cause serious reputational and regulatory damage, whether or not a business is actually using dynamic pricing.
Source: verified via search, September 2026 — Lexology and NPR coverage of the CMA's investigation into Ticketmaster's Oasis ticket sale and its findings.
Quick Quiz
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1. A new streaming service launches with a very low introductory price to win subscribers quickly. What pricing strategy is this?
2. Apple charging a high price for a brand-new iPhone at launch is an example of which strategy?
3. Uber raising prices during a busy period is an example of which strategy?
4. Increasing price is most likely to raise total revenue when demand is...
5. What is a key risk of dynamic pricing, based on the Ticketmaster/live events example?
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Matching Activity
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Quick Knowledge Check
Short, snappy recall questions — tap to reveal the answer.
What is price skimming? (1 mark)
Charging a high price at first, then gradually lowering it.
What is penetration pricing? (1 mark)
Setting a low price to gain a foothold in a market.
What is dynamic pricing? (1 mark)
Prices that change flexibly based on demand or other factors.
Key Term Flashcards
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Price skimming
Charging a higher price when a product first launches, e.g. Apple's iPhone pricing.
Penetration pricing
Setting a low price to gain a foothold in the market, e.g. Ryanair's low headline fares.
Dynamic pricing
Setting flexible prices based on current market demand, e.g. Uber's surge pricing.
Cost-plus pricing
Calculating the cost of making a product and adding a set profit margin ("bottom line" plus extra).
Going-rate pricing
Setting your price in line with what competitors are charging, rather than based on your own costs or demand.
A*/A Stretch
Synoptic link
Connecting to PED (earlier in 3.1.3): Every pricing strategy decision in this lesson should really be filtered through PED — price skimming works best where demand is relatively price inelastic in the short term (e.g. loyal Apple customers), while penetration pricing assumes demand is elastic enough that a lower price will meaningfully grow sales volume. Don't discuss pricing strategy in an exam answer without linking back to how price-sensitive that specific market is.
Examiner's eye
"Discuss" and "analyse" questions on pricing strategy expect a two-sided argument (see the STAR Task structure: one paragraph on price increases, one on price decreases) before reaching a conclusion — don't just describe one pricing strategy in isolation when the command word calls for weighing up alternatives.
Try This With AI
Before using this: AI tools can get facts or mark scheme details wrong, and quality varies by tool. Always check anything factual against your notes or ask your teacher.
Give me the name of a real UK or global business. Ask me to identify which pricing strategy it most likely uses, and to explain why that strategy suits its target market and level of price elasticity of demand. Then check whether my explanation links pricing back to elasticity, not just to the definition of the strategy.