Marketing Mix: Price (Copy)
Cheat Sheet: 3.3.2 Price
Pricing Methods
| Method | Explanation | Benefits | Limitations | Example |
|---|---|---|---|---|
| Cost-Plus Pricing | Add % profit margin to cost | Simple, ensures cost covered | Ignores competition, demand | Furniture store adds 20% profit |
| Competitive Pricing | Set price close to rivals | Attractive to customers, avoids price war | Profit margins lower | Petrol stations |
| Penetration Pricing | Start with low price to attract buyers | Gains market share quickly | Low profit early, hard to raise later | Netflix in new markets |
| Price Skimming | High price at launch, lower later | High early profit, recovers R&D | Attracts competitors, only works short-term | iPhones |
| Promotional Pricing | Temporary price cuts | Boosts sales, clear stock | Unsustainable long-term | Supermarket discounts |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Choosing Pricing Method
| Situation | Best Method | Justification |
|---|---|---|
| New innovative product | Skimming | Recover high R&D costs quickly |
| Entering competitive market | Penetration | Attract customers fast |
| Luxury brand | Competitive / Skimming | Maintain image & profit |
| Seasonal clearance | Promotional | Sell remaining stock |
| Everyday goods | Competitive | Stay attractive to customers |
Price Elasticity of Demand (PED)
| Concept | Definition | Example |
|---|---|---|
| Price Elastic Demand | Demand changes greatly when price changes | Soft drinks, fast food |
| Price Inelastic Demand | Demand changes little with price change | Petrol, essential medicines |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Importance of PED in Pricing Decisions
| PED Type | Pricing Decision | Reason |
|---|---|---|
| Elastic | Lower prices may increase revenue | Demand rises significantly (e.g. snacks) |
| Inelastic | Higher prices may increase revenue | Demand hardly falls (e.g. petrol) |
Quick Revision Bullets
- Cost-plus = easy but ignores demand
- Competitive = price near rivals, good for mass markets
- Penetration = low entry price → build market share
- Skimming = high launch price → recover R&D
- Promotional = discounts to boost short-term sales
- PED = Elastic (demand sensitive) vs. Inelastic (demand steady)
- Businesses use PED to set price for revenue growth
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course