Price: Applying Pricing Methods (OCR GCSE Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
Choosing an Appropriate Pricing Method
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
Factor | Explanation |
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Number of USPs/ |
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Technology |
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Nature of the market |
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Strength of the brand |
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Stage in the product life cycle |
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Costs and the need to |
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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 the exam, you may be asked to analyse the benefits or drawbacks of a particular pricing method. In your analysis, you should try to develop a chain of reasoning that makes a valid point and considers consequences. You must also remember to include references to the context to score top marks.
Case Study
Bilberry Organics Limited sells and delivers British-grown seasonal vegetable boxes to mail-order customers in the London area.
Its loyal customers tend to be time-poor, high-income, 'green' consumers who value convenience and quality.
It operates in an increasingly competitive market, with three new competitors emerging in recent months and the expansion of fresh product ranges in local supermarkets.
The business has significant costs, as it runs three large farms on the outskirts of the city and is committed to paying its workers high wages. It delivers only the best quality products to customers, and operates a small fleet of electric delivery vehicles that allow products to be delivered directly to their customers' front doors.
The managing director is keen to change from its current price skimming strategy. She has identified two suitable alternative pricing strategies:
Cost-plus pricing
Competitive pricing
Recommendation
Both strategies could be appropriate for an established business like Bilberry Organics Ltd
Cost-plus pricing would ensure that Bilberry Organics Ltd's significant costs would be covered and a profit generated
Competitive pricing would mean that the business would be in a better position to maintain market share in an increasingly competitive market
Overall, it has loyal customers who have high incomes. They are likely to value Bilberry Organics Ltd's service for its convenience and high quality products, delivered in an environmentally friendly way. These customers are unlikely to be swayed by lower-priced competition. Setting prices to match rivals' may therefore not be necessary, especially as their customers may lack the time to shop in supermarkets.
Cost-plus pricing is therefore likely to be the most logical strategy
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