Price (AQA GCSE Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
The Importance of Price
Price is the only element of the marketing mix that relates directly to sales revenue, so is vital to a business achieving its sales and profit objectives
By setting suitable prices, a business can maximise revenue and improve profits
The pricing method must also meet the needs and expectations of customers
A pricing strategy should reflect the brand and quality of the product
The wrong strategy is likely to reduce the potential level of profitability
E.g. A low price for a luxury-branded product may deter consumers who often purchase these goods as status symbols
A business may use more than one method of pricing across its product range
E.g. A large supermarket may offer premium-priced product ranges alongside a selection of loss leaders
Price is often closely linked to the level of demand for a product
In most cases, an increase in price leads to a fall in demand for a product
Similarly, a fall in price leads to an increase in demand for a product
There are some exceptions
Businesses that sell well-known brands with strong USPs and invest in promotional activity are less likely to be affected by falling demand when they increase prices
Businesses that sell essential goods or face minimal competition are likely to be able to increase prices with little impact on demand
Pricing Methods
A pricing method is the approach businesses use to determine what prices they should charge customers for their products
Choosing the right method is essential for a business to be profitable, competitive and successful in the long run
Price can play a significant role in the market positioning of the brand and help a firm compete with rivals
Diagram: The main pricing methods
Businesses can choose from a range of pricing strategies to suit the products they sell and the customers at which they are aimed
The Main Pricing Methods
Pricing Method and Explanation | Advantages | Disadvantages |
---|---|---|
Cost plus pricing | ||
|
|
|
Price skimming | ||
|
|
|
Penetration pricing | ||
|
|
|
Competition pricing | ||
|
|
|
Loss leader pricing | ||
|
|
|
Factors that Influence Pricing Decisions
A business needs to consider various factors when determining which pricing methods it will use
Understanding these factors can help a business make informed decisions about its pricing and increase its chances of success
Factors to Consider when Selecting Pricing Methods
|
|
---|---|
Number of USPs/ |
|
Technology |
|
Nature of the market |
|
Strength of the brand |
|
Stage in the product life cycle |
|
Costs and the need to |
|
Many retailers have had to adjust their pricing methods to remain competitive in an online marketplace
Customers are increasingly able to use online tools to compare prices, e.g www.comparethemarket.com
Pricing has changed to reflect the rise of price comparison through the use of price matching policies
Some retailers offer to match the prices of their rivals in order to prevent customers from switching to a competitor with a lower price
Examiner Tips and Tricks
In a 12-mark question, you could be asked to recommend a suitable pricing method for a business. Consider the context of that business. What kind of product does it sell? Is it an essential or a luxury good? What kind of reputation does the business have? Is it renowned for quality or for bargains? What does the business want to achieve? Increased sales revenue or increased sales volume? All of these factors will be important when making your recommendation.
Last updated:
You've read 0 of your 5 free revision notes this week
Sign up now. It’s free!
Did this page help you?