Copyright 2007 – Biz/ed Pricing Policies, Quality and Adding Value BTEC Business
Copyright 2007 – Biz/ed Business Use of Demand Curves Firms can find analysis of their products’ demand curves useful as it helps them: Work out how changing their prices will affect their revenue Assess how consumers will react to changes in price
Copyright 2007 – Biz/ed Price and Demand In general, the higher the price charged for a good or service, the lower the quantity that will be demanded of that product This relationship is not necessarily simple Let’s look at an example
Copyright 2007 – Biz/ed Demand Analysis PriceQuantity Demanded Total Revenue
Copyright 2007 – Biz/ed Demand Analysis At £100 per unit, the firm earns £80000 revenue If price rises to £150 per unit, revenue falls to £60000 This helps the firm find its revenue maximising price PriceQuantity Demanded Total Revenue
Copyright 2007 – Biz/ed Demand Analysis At any price below £100 per unit, the firm earns more by raising its price At prices over £100 per unit, the firm’s revenue falls The revenue maximising price is at around £100 per unit PriceQuantity Demanded Total Revenue
Copyright 2007 – Biz/ed Pricing Policies If a firm has the power in its market to set its own price, it can adopt a pricing policy: Market penetration pricing Destroyer pricing Follow-the-leader pricing Skimming
Copyright 2007 – Biz/ed Pricing Policies Find out more about these policies in your research time. ‘Premium’ pricing means charging higher prices to certain segments of their market.
Copyright 2007 – Biz/ed Adding Value This is where raw materials or component parts are processed to boost their value when they are sold on.
Copyright 2007 – Biz/ed Advertising Firms’ pricing policies can be made to work better through the use of advertising. Advertising is included under ‘Promotion’ as part of the Marketing Mix. Its aim is either to inform consumers or to persuade them to buy a particular product or range of products.
Copyright 2007 – Biz/ed Advertising In oligopoly markets, advertising is often used to differentiate one firm’s products from those of its competitors Firms adopting a market skimming policy use advertising to persuade consumers to demand their premium product