2.2 Flashcards
what is PED?
the degree to which the quantity demanded of a product is affected by a price change
what is elasticity?
a measure of the extent to which demand will change
how do you calculate PED?
%change in quantity demanded / %change in price
what does elastic mean?
price changes cause a larger % change in demand
demand is relatively responsive
value = beyond -1
what does unitary mean?
demand changes by same % as price
value = -1
what does perfectly inelastic mean?
price changes leave demand unaltered
value = 0
what does inelastic mean?
demand changes by a smaller % than price
demand is relatively unresponsive
value = between 0 and -1
what are the 6 factors influencing PED?
necessity
bought out of habit
number of substitutes and uniqueness of product
cost and time to switch
loyalty
consumer income and proportion spent
what does a price increase mean for PED elastic products?
decrease?
sales revenue falls (affect on profit will depend on costs)
sales revenue rises
what does a price increase mean for PED unitary products?
decrease?
sales revenue unchanged (good idea but depends on objectives)
sales revenue unchanged
what does a price increase mean for PED inelastic products?
decrease?
sales revenue rises
sales revenue falls
what are the 3 determinants of PED?
substitutes
time
market
what does a niche market target?
specific market as higher quality
what does PED mean for niche markets?
consumers are willing to pay more
demand is less responsive
price inelastic
as a result higher prices higher added value and demand will be less
what does a mass market target?
the whole population
what does PED mean for mass markets?
price is important to consumers
consumers are willing to pay less if there is lots of competition
demand is more responsive
price elastic
as a result lower prices smaller added value and greater demand
what are the 6 types of pricing methods?
cost plus
skimming
penetration
predatory
competitive
psychological
what is cost plus pricing?
when a % marker is added to the cost of production to calculate the selling price (TC per unit + %mark-up)
what is skimming pricing?
setting a high initial price for a new product to recoup costs, they do this to target early adopters, once the market is ‘skimmed off’ they will lower their price
what is penetration pricing?
setting a low initial price to get market share (mass markets) once the product is established the price may rise (used with elastic products)
what is predatory pricing?
prices set low in the short term to force others out of the market price then put back up (used by dominant firms and less ethical)
what is competitive pricing?
price based on competitor prices either price takers or leaders
what is psychological pricing?
when firms set the price to entice customers by making it sound cheaper
what are the 6 factors determining choice of price strategy?
number of USPs (amount of differentiation)
PED
level of competition in the business environment
strength of brand
stage in the product life cycle
costs and need to make a profit
how have changes in pricing reflected social trends?
online sales have led to the frequent use of dynamic pricing
price comparison sites have also contributed
when does non-price competition occur?
when a firm distinguishes or differentiates its product
what does product differentiation do?
provides a competitive advantage and shifts demand to the right e.g. quality, function and design features, imperfect information, advertising, location/convenience all of these can create a USP
what impacts the choice of the promotional mix used? (4)?
the nature of the market ie local v national
the nature of the product: B2C = persuasive, B2B = informative
activities of competitors
finance available
what is a sunk cost?
a cost that can’t be recovered and deters new entrants, firms will spend a lot on brand loyalty and respect custom e.g. promotion
what are the 3 types of promotion?
advertising
sales promotion
direct marketing
what does advertising have to be?
informative and persuasive e.g newspaper, social media, poster, tv & radio
what is sales promotion?
a short term method to attract customers to buy e.g. competitions, special offers, free samples
what is direct marketing?
any marketing activity that is directly aimed at the consumer e.g. direct and electronic mail, door to door selling and social media (new tech has made it easier and cheaper)
what are the 5 types of distribution channels?
direct selling
retailers
wholesalers
e-commerce
multi channel distribution
what is a wholesaler?
firms that buy large quantities of supplies from producers and sell them on in smaller quantities
what is a multi channel distribution?
a combination of distribution channel methods
what affects distribution decisions (6) ?
type of product
market
quantity and frequency
geographical location
cost
degree of control
what is Big Data?
the high volume, velocity and variety of information that combines with cost-effective, innovative information processing for better insight and decision making e.g. Mixpanel and Kapost (how much will a single tweet add to revenue)
what are positives of Big Data?
less waste
more efficient marketing
what are negatives of Big Data?
privacy issues
what is YED?
the responsiveness of consumers to changes in income
what are the 2 types of goods?
normal (luxuries or necessities) and inferior
what is a normal good?
have a positive income elasticity of demand
what is an inferior good?
have a negative income elasticity of demand
how do you calculate YED?
%change in quantity / %change in income
what happens if the result of YED is negative?
demand decreases as income rises making it an inferior good with a negative income elasticity
what happens if the result of YED is 0?
demand remains when income changes making it a necessity good with a 0 income elasticity
what happens if the result of YED is 0-1?
demand increases by a smaller proportion than income making it a necessity good which is income inelastic
what happens if the result of YED is 1?
demand changes proportionately with income making it a necessity good which has unit income elasticity
what happens if the result of YED is 1+?
demand changes by a greater proportion than income making it a luxury good that is income elastic
what is the YED relevance to firms?
as global standards of living increase we move to more luxury good and away from inferiors
what are the 4 influences on YED?
type of product
changes with time and fashion trends
proportion of income spent
economy/confidence
what is the impact on firms of growth in economy?
incomes increase, consumers buy more normal goods, firms selling inferior goods may diversify into growing markets or find ways to add value
what is the impact on firms in a recession?
incomes decrease, consumers buy more inferior goods, firms selling normal goods may consider lower cost alternatives for consumers
