Costs: the floor underneath every price

1. Costs influence the price because it has to cover what the product costs to make and to sell, or the business loses money on every sale it makes.
   1. A bakery in Leeds whose ingredients, wages, packaging and rent work out at £1.20 a loaf has to charge more than £1.20, otherwise a busy day makes the loss larger rather than smaller.
   2. Costs set the lowest price the business can survive at, not the price it actually charges, so every other influence works in the gap between that floor and the most customers are willing to pay.

Technology: customers can compare in seconds and prices can move in minutes

1. Online comparison lets a customer check four or five rivals in seconds, so a price set above the going rate is found before the customer reaches the checkout.
   1. This pushes prices down and makes a high price harder to sustain, because the higher price now has to be paid for by something the customer can see, such as free delivery, a longer guarantee or better reviews.
2. Technology works for the seller too, since an online price can be changed in minutes and at no cost, where a printed price list or a shelf label costs staff time to reprint and replace.
   1. Data from an app or a loyalty card also lets the business send a targeted discount to the customers who have stopped buying, which means the price is cut only where it is needed and the margin on everyone else is protected.

Competition and market segments: how much freedom the business actually has

1. Competition narrows the choice, because in a crowded market selling near-identical products the business has to price close to its rivals or watch customers switch over a few pence.
   1. Aldi and Lidl compete on price with a narrower range, which forces Tesco, Sainsbury's and Asda to hold down the price of the staples everybody buys and to compete on range and click and collect instead.
2. A business with no close rival has far more freedom, so Dyson can price its bagless vacuum cleaners well above the market because a shopper comparing it with a cheaper machine is not comparing the same thing.
3. Market segments matter because different groups of customers will pay different amounts for the same basic need, so one business often runs a budget range and a premium range at very different prices.
4. Referring to the table below, read down the price column and none of these prices is decided by cost alone, because each one is held up or held down by a decision about who the customer is.
5. PureGym and Aldi each took a cost out of the business before taking money off the price, so the low price is a sustainable position rather than a loss the business has to absorb.

The product life cycle, the brand and what the price signals

1. The stage of the product life cycle changes the strategy, because a launch, a mature product and a product in decline each face different customers and different rivals.
   1. A launch may use skimming or penetration, a mature product drifts towards the price of the rivals who have copied it, and a product in decline is priced to clear the stock before it is worth nothing.
2. A strong brand supports a higher price, because customers who trust the name believe they are buying reliability or status, which is why Nike and Adidas hold a premium over unbranded sportswear.
3. Price also signals quality, so cutting the price of a premium product can damage the image it depends on: if Dr Martens sold at the price of unbranded boots, buyers would start to doubt the durability they are paying for, and raising the price again later would lose the customers the discount attracted.