Product & Pricing
The ‘Product’ and ‘Price’ Ps
Product and price are two of the four elements of the marketing mix. If the product does not solve a customer’s problem or look appealing, no promotion will save it. If the price is wrong — too high for the quality, or too low to cover costs — even a great product will fail. This lesson covers how UK businesses design products that stand out, and how they choose a pricing method that fits their strategy.
Product: Design, Image and Target Market
A successful product matches the target customer’s needs and communicates the right image through its design. Apple’s iPhone is a classic UK-relevant example: clean lines, premium glass and aluminium, and a box that feels expensive before you even turn the phone on. Every design choice says ‘high-end’, justifying a premium price.
Designing new products brings benefits — higher sales, reaching new customers, staying ahead of rivals — but also risks. R&D is expensive, launches can flop, and existing customers may feel the brand has changed too much. Businesses manage this risk with market research (last lesson) before committing to design.
Good product design must deliver: (1) the function the customer needs, (2) an image that matches the target market (premium, budget, eco-friendly), and (3) differentiation from rival products.
Unique Selling Point (USP) and Brand Image
A unique selling point (USP) is what makes a product clearly different from rivals. BrewDog’s USP in the beer market is punk branding and full ingredient transparency. innocent’s USP in smoothies is natural ingredients with a chatty, ethical tone. A USP lets a business charge a premium and build customer loyalty because customers cannot get the same thing elsewhere.
Brand image is how customers see a brand in their head. Nike means performance and confidence. Primark means cheap and cheerful. Rolls-Royce means luxury and heritage. Brand image is built slowly through consistent design, advertising and experience — and once it exists, it shapes every buying decision customers make. A strong brand image also lets a business launch new products more easily because customers are already willing to trust the name: Apple’s move from laptops into phones, watches and headphones worked because the brand image was already established.
Pricing Methods
The specification requires five pricing methods. Each one suits different situations — a business picks the method that matches its product, competition and objectives.
Price skimming — used by Apple on new iPhones. Launch high, attract early adopters willing to pay a premium, then cut the price once rivals catch up. Works best when the product has a real USP.
Penetration pricing — used by Aldi and Lidl when entering the UK supermarket market. Low prices attracted cost-conscious shoppers fast, and both chains have since nudged prices up while keeping their value image.
Competitive pricing — used everywhere in the petrol market. Prices at neighbouring garages move together because customers check the board across the road. Protects market share but means the business cannot stand out on price alone.
Loss leader — supermarkets selling milk, bread or baked beans at a loss. Customers come in for the bargain and fill their trolley with higher-margin items.
Cost-plus — used by tradespeople and manufacturers. Calculate the unit cost, add (say) 40%, and that is the price. Simple and guarantees a margin, but ignores what customers will actually pay.
Factors That Influence Price
Four factors pull price up or down. Costs set a floor — a business must eventually cover its costs to survive. Nature of the market matters: luxury markets accept premium prices; budget markets do not. Degree of competition shapes how free the business is to set its own price — where there are many rivals (petrol, coffee), prices move together. Product life cycle stage matters too: launch prices differ from mature-stage prices, which we cover next lesson.
Underpinning all of this is the price and demand relationship: as price rises, demand usually falls. Raise the price of a Greggs sausage roll by 50p and some customers will walk past. This is why small price changes are tested carefully.
Benefits of launching a new product: it can open up new customer segments, stretch the brand into higher-margin areas, keep the business ahead of rivals, and refresh an ageing product portfolio. Tesla’s move into the Model 3 at a lower price point brought in mass-market buyers it could not reach with the premium Model S.
Risks: research and development is expensive, the new product may fail to sell (New Coke in the 1980s is the classic failure), and the existing brand can be damaged if customers feel it has moved too far from what they liked. Good businesses use market research — the last lesson — to reduce the risk before committing cash.
The five pricing methods in the specification are: price skimming, penetration pricing, competitive pricing, loss leader and cost-plus. Each method suits a different type of product, market and objective.