IGCSE Business Studies

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Presentation transcript:

IGCSE Business Studies Unit 3.3.1 - Price i-study.co.uk

Pricing considerations Competitors prices Consumers Costs of production Objectives Government influence Can you compete Can you charger lower? How much are they willing to pay? What’s the lowest price you can charge? Do you want growth or profit or survival? What are tax rates? Any subsidies available? i-study.co.uk

Types of Pricing Strategies Pricing Strategy Demand-Based Competitive Cost/Supply-Based i-study.co.uk

Demand-Based Strategies Psychological Pricing Price Skimming Penetration Pricing Promotional Pricing Dynamic Pricing [also called price discrimination] i-study.co.uk

Cost/Supply-Based Strategies Cost-based Pricing This is when a firm finds out the average unit cost of production and then adds a % on for profit. Sales price per unit = Total Cost Total Output +% profit i-study.co.uk

Competitive Market Pricing Destroyer / Predatory Pricing – this is when prices are set deliberately low – often lower than costs – so that competitors are forced out of the market Price wars – this is when firms compete on driving price down in order to gain the most consumers i-study.co.uk

Price Elasticity of Demand Price Elasticity of Demand measures the relationship between the change in price and the change in quantity demanded. i-study.co.uk

Elasticities Inelastic goods – the % change in price is larger than the % change in quantity demanded Elastic goods – the % change in price is smaller than the % change in quantity demanded i-study.co.uk

Price Discrimination Price Discrimination is charging different prices to different users or market segments for the same product. If you know that someone needs a product, then their demand will be very inelastic. You can therefore put the price up for these people, whilst for people that don't need it or even want it, you could lower the price as their demand is elastic. In each case your revenue would go up. This is done for things such as cinema tickets (pensioners pay less, working earners pay more) or airline tickets. This is sometimes also known as dynamic pricing i-study.co.uk

See worksheet i-study.co.uk