Unit 4 - Marketing (Marketing Mix: Price)

Question 1

What is price?

Answer 1

Price refers to the money charge for a good or service.
Importance:
- Pricing decisions directly affect the revenue a business receives. Remember, revenue is used to pay for the costs of running.
- Directly affect the consumer’s perception of a good or service.

Question 2

Price skimming - new product

Answer 2

Price skimming involves setting a high price before other competitors come into the market.
- High profits straight away. Pay back its research and development costs.
- Profits made can be invested in the next new product.
- Get a reputation for quality.
- Cannot last for long, as competitors soon launch rival products.
- Slow down the growth in sales.

Question 3

Price penetration

Answer 3

Price penetration involves setting a low price in order to enter the market to draw consumers away from the competition.
- Builds customer usage and loyalty.
- Develop long-term profitability of having higher sales and a higher market share.
-Short term, it is likely to result in lower profits.
- Difficult to raise the selling price in the future.

Question 4

Competitive pricing

Answer 4

Competitive pricing involves setting prices based on what rivals are charging.
- Useful when there is strong competition.
- Prices should be competitive and therefore attract customers.
- Business may need other ways to attract customers other than price.
- Need to research what its competition are charging, which could increase costs and lower profits.
- If there is little competition, this pricing method will not be important.

Question 5

Promotional

Answer 5

Promotional pricing is where a business lowers the price of its product for a short period of time.

Question 6

Cost-plus

Answer 6

Cost plus pricing involves setting a price by adding a fixed amount or percentage to the cost of making or buying the product.
- Profit is guaranteed on each item sold.
- Price may be expensive compared to rivals and therefore uncompetitive.
- Does not take into account what the customer is willing to pay.

Question 7

Pricing based on costs

Answer 7

A price must be more than the related costs, in order to make a profit.

Question 8

Cost plus calculations

Answer 8

Price = unit cost + (mark up x unit cost)