3.3.2 - marketing mix - price

Question 1

what is cost plus pricing?

Answer 1

estimating how many products will be sold, calculating the total cost of making these products and then adding a percentage mark up for profit

Question 2

what are the benefits and drawbacks of cost plus pricing?

Answer 2

• each product earns a profit for the business ​
• it is an easy method to apply​
• the business could lose sales if the selling price is too high compared to competitors. ​
• there is no incentive to reduce costs as the costs are simply passed off to the consumer in the form of a higher price

Question 3

what is competitive pricing?

Answer 3

setting prices in line with your competitors or just below them ​

Question 4

what are the benefits and drawbacks of competitive pricing?

Answer 4

• the product is not overpriced compared to competitors so sales are likely to be be higher ​
• if the costs of production of the business are higher than the competitors then a competitive price could lead to a loss being made​
• a higher quality product may need to be sold at a higher prices to give it a higher quality image

Question 5

what is penetration pricing?

Answer 5

when the price is set lower than the competitors’ prices in order to be able to enter a new market

Question 6

what are the benefits and drawbacks of penetration pricing?

Answer 6

• useful for new products to encourage customers to buy the product ​
• will lead to an increase in sales and an increase in market share ​
• as it is sold at a low price, profit per unit may be low. ​
• might not be appropriate for a branded product with a reputation for quality ​
• customers might get used to the low prices and if the business want to increase prices in the future this could lead to customer dissatisfaction

Question 7

what is price skimming?

Answer 7

a high price is set for a new product on a market ​

Question 8

what are the benefits and drawbacks of price skimming?

Answer 8

• skimming can help to make the product be perceived as of high quality​
• research and development costs can be recouped from the profit made on the the product at the high price ​
• the high price may discourage some customers from buying the product ​
• the high profits the business is making may encourage other competitors to enter the market. could result in a decrease in sales.

Question 9

what is promotional pricing?

Answer 9

when a product is sold at a very low price for a short period of time e.g. 25% off or BOGOF​

Question 10

what are the benefits and drawbacks of promotional pricing?

Answer 10

• it is useful for getting rid of stock that will not sell e.g. summer clothes at the start of winter ​
• it can help to renew interest in the product if sales are falling​
• the revenue will be lower per unit because the price of the product has been reduced ​
• it might lead to a price war with competitors as they may reduce their prices too in response and so customers may purchases competitor’s products instead

Question 11

what is price elasticity of demand (PED)?

Answer 11

PED is the responsiveness of demand to a change in price. a product can either be price elastic or inelastic ​

Question 12

what is price elastic?

Answer 12

when consumers are very sensitive to a change in price i.e. if prices increases, demand will decrease significantly. ​if the demand for a product is price elastic, then it is not a good idea to raise prices. ​

Question 13

what is price inelastic?

Answer 13

when consumers are not very sensitive to a change in price i.e. If the price of a product increases, demand will not decrease significantly. if the demand for a product is price inelastic, then the business can increase revenue by increasing prices