Business Studies - 0450 CIE

Price:

Overview

Price is the only part of the marketing mix that brings money in; the rest cost money. Set the price too high and customers walk away; set it too low and the firm gives away profit it could have earned. Choosing a pricing method is one of the most important and most tested decisions a business makes.

In this lesson you will compare the main pricing methods, cost-plus, competitive, penetration, skimming and promotional, learn the benefits and limitations of each, and practise recommending the right one for a given situation. You will also meet price elasticity of demand and see why it decides whether raising a price will help or hurt revenue.

Objectives

Pricing methods (benefits and limitations of different methods), e.g. cost plus, competitive, penetration, skimming, and promotional
Recommend and justify an appropriate pricing method in given circumstances
Understand the significance of price elasticity: difference between price elastic demand and price inelastic demand; importance of the concept in pricing decisions (knowledge of the formula and calculations of PED will not be assessed)

Lesson Note

The right price depends on the product, the competition and how sensitive customers are to price. A new product needs a different strategy from one with many rivals, and a firm that misjudges how customers react to a price change can lose revenue overnight. Exam questions regularly ask you to select and justify a pricing method, so understanding the trade-offs is essential.

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Lesson Evaluation

Congratulations on completing the lesson on Price:. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.

You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.

Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.

Adding a percentage mark-up for profit to the unit cost is called: A. penetration pricing B. cost-plus pricing C. price skimming D. competitive pricing Answer: B
Launching a new, unique product at a high price is called: A. penetration pricing B. promotional pricing C. price skimming D. cost-plus pricing Answer: C
If demand is price elastic, raising the price will cause total revenue to: A. rise B. fall C. stay exactly the same D. become zero Answer: B
Setting a low price to break into a market is: A. skimming B. cost-plus C. penetration pricing D. promotional pricing Answer: C
Demand for a product with very few close substitutes is most likely to be: A. price elastic B. price inelastic C. always zero D. fixed by law Answer: B