Price (OCR GCSE Business)

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

  • Setting the price too high is likely to reduce sales

  • Setting the price too low is likely to reduce profit

• 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:

    • When well-known brands with strong USPs, invest in promotional activity and raise prices, they are less likely to be affected by falling demand

    • Businesses that sell essential goods or face minimal competition are likely to be able to increase prices with little impact on demand

• Price can also convey the level of scarcity

  • If the supply of goods is restricted, prices often increase

    • This is especially true if products are essential or there are few alternatives

      • E.g. When the supply of motor fuel was disrupted as a result of the recent conflict in Ukraine, petrol retailers increased their prices