2.2 Using the Marketing Mix - Price What price tag would you put on each of the following items? Harrods Vintage Bugatti A Pablo Picasso’s 1932 painting A pair of Michael Jackson’s boxer shorts

2.2 Using the Marketing Mix - Price Revisiting Unit 1 In unit 1 you looked at the factors that businesses consider when pricing their products Pricing and demand Competitor prices Pricing based on costs In unit 2 you will be looking at pricing decisions that will aid the growth of the business

2.2 Using the Marketing Mix - Price In this topic you will learn about: Pricing decisions for growth Factors affecting pricing decisions

Pricing decisions for growth 2.2 Using the Marketing Mix - Price There are a variety of pricing methods used by a business when trying to grow: Price skimming This involves setting a high price at the launch of a product as some consumers are willing to pay a high price for the product to have it immediately. Using this method means that a business maximises revenues at the high end of the market, normally those with higher disposable incomes. Once the top end of the market has been ‘skimmed’ the business will lower prices. Have you ever paid a high price for a product when it first comes out? A mobile phone Game station Latest trainers

Pricing decisions for growth 2.2 Using the Marketing Mix - Price Pricing decisions for growth Price penetration Here, the business sets a low price in order to gain market share. Once this objective has been met the business will raise prices. The idea is to build up a customer base and hope for repeat custom once prices have been increased. This tends to occur when the business is targeting a mass market. Draw a spider diagram to show products that use price penetration.

Pricing decisions for growth 2.2 Using the Marketing Mix - Price Pricing decisions for growth Competitive pricing Often, a business will have to take into account the prices of other businesses in the market The greater the degree of competition in the market the more important price becomes Has the introduction of price comparison websites increased the use of competitive pricing?

Pricing decisions for growth 2.2 Using the Marketing Mix - Price Pricing decisions for growth Loss leader This occurs when a business sets price below the cost of the product This can attract customers to a store where they will also buy additional products Some firms sell the core product as a loss leader and make additional sales by selling accessories to the product Why might a supermarket decide to sell a product such as a CD or garden furniture as a loss leader?

Pricing decisions for growth 2.2 Using the Marketing Mix - Price Cost-plus This occurs when a business sets a price based on the unit cost of the product by adding a profit mark up This ensures that every unit sold at least covers the cost of the product This takes into account total costs http://www.youtube.com/watch?v=tv1w8pdEWV8&feature=channel Make some additional notes on price as you watch this video clip

Applying Pricing Strategies - Starter 2.2 Using the Marketing Mix - Price Applying Pricing Strategies - Starter Match the term on the left with the correct definition on the right 1. Cost-plus pricing a. Setting price to cover the costs of a product b. The % added to the cost plus price for profit 2. Loss leader 3. Mark up c. An opening low price to gain market share 4. Penetration pricing d. An opening high price for a new product e. A good priced so low that it does not even cover its costs 5. Skimming

Applying Pricing Strategies - Starter 2.2 Using the Marketing Mix - Price Applying Pricing Strategies - Starter Match the term on the left with the correct definition on the right a. Setting price to cover the costs of a product 1. Cost-plus pricing e. A good priced so low that it does not even cover its costs 2. Loss leader 3. Mark up b. The % added to the cost plus price for profit 4. Penetration pricing c. An opening low price to gain market share 5. Skimming d. An opening high price for a new product

2.2 Using the Marketing Mix - Price Group Activity For each scenario below identify and justify an appropriate pricing method: Class Kitchens Ltd. make made to measure kitchens, each one is individually designed to meet the exact needs of the customer HiT have just launched the latest advancement in non-stick cookware, with a 20 year guarantee Craft Kitchens have acquired a bulk purchase of branded barbeque accessories at an unbelievably low cost Needle Convenience Stores are stocking Dairy Milk promotional chocolate bars in the lead up to 2012 Olympic Games

Factors affecting pricing decisions 2.2 Using the Marketing Mix - Price Factors affecting pricing decisions A number of factors will affect the pricing decisions made by businesses. The AQA specification gives two examples: The nature of the market Who is the customer and what are they willing to pay for the product? Brand image is important in allowing firms to charge higher prices The degree of competition Fewer businesses mean less competition. Firms will tend to compete on factors other than price e.g. Promotion.

End 5 Minute Test What is price penetration? State one advantage of using price skimming A garden bench costs £20 to make. A business uses cost-plus pricing adding a ten percent profit mark-up. What is the selling price? What is meant by the term loss leader? State two factors that will affect the pricing decision of a business. End

What is meant by price skimming? (2 marks) 2.2 Using the Marketing Mix - Price Snowslopes Ltd. introduces the latest trends in ski and surfwear each season. This year the ski industry has seen the launch of a new high tech fabric which is ultra light and ultra warm making ski clothing easier to pack and more comfortable. Such technologically advanced fabrics, however, come at a high price. Sophie is pleased with initial sales, supported by a strategy of price skimming. Question Time What is meant by price skimming? (2 marks) Identify two factors that have enabled Snowslopes Ltd. to adopt a strategy of price skimming . (2 marks) How could Snowslopes Ltd. Change its pricing methods to help expand sales in the future? Give reasons for your answer. (9 marks)

Sample GCSE Question Unit 2 2010 2.2 Using the Marketing Mix - Price Sample GCSE Question Unit 2 2010 Smith’s Ltd is competing against some very big supermarket chains which sell a wide variety of products, not only organic food. The Marketing Director is concerned that the larger supermarkets have a much wider product range and can charge lower prices.If Smith’s Ltd does expand, it will need to adopt a marketing plan to be able to compete with the biggest supermarkets. Smith’s Ltd will also need to attract new customers, especially in those parts of the country where they are not yet established.

2.2 Using the Marketing Mix - Price (a)Explain two ways in which a larger supermarket could use its size to gain an advantage over its smaller competitors (5 marks) 2(b)Explain two ways in which Smithís Ltd could extend its product portfolio (5 marks) 2(c)How could Smith’s Ltd use pricing methods to help it expand its business. Give reasons for your answer (9 marks)