Price

Pricing Strategies Psychological Pricing Loss Leaders Competitive Pricing Full-cost (absorption-cost) pricing Marginal-cost Pricing Predatory Pricing Pricing Strategies Creaming / skimming Cost-plus pricing Discrimination Pricing Premium Pricing Penetration Pricing Going-rate Pricing

Exam questions What is meant by price elasticity of demand? [2] The responsiveness for demand for a product when there is a change in price.

Price elasticity The percentage change in quantity demanded is greater than the percentage change in price Price P2 P1 D Q2 Q1 Quantity

Price inelasticity P1 P2 The percentage change in quantity demanded is less than the percentage change in price Price D Q1 Q2 Quantity

Price elasticity of demand PED is usually negative because a fall in price (-ve) usually results in a rise in demand (+ve) % ∆ QD % ∆ P Calculate the % ∆ P Calculate the % ∆ QD Example: PED=10/25 = 0.4 Old price New price Old demand New demand 100 80 3,000 2,000 456 430 88 300 299 243 130 If it is <1 is it negative

Old price New price Old demand New demand Answer Elastic / Inelastic

June 2005 paper 1 Jomo manages a small printing business. One of his customers asked Jomo to quote a price for a sales leaflet that they needed. Jomo investigated the costs of the order and his results are shown in Figure 1. Jomo add a 50% mark-up to the average cost per unit to calculate the selling price. $ No of copies Total cost 64,000 10,000 1. Do you think that the pricing method Jomo uses is the best one for his business? Explain your answer. [6] 2. Suggest an alternative pricing method for Jomo to use. Justify your answer. [6]

Activity 27.7 Levis & Tesco Mark scheme – Attempt at evaluative comment in context, eg. Likely outcome if Tesco are allowed to sell Levi jeans. [11-12marks] Analysis of how Tesco’s pricing strategies could harm Levi’s reputation [8-10]marks] Shows a good understanding of the effects of different pricing strategies [3-7 marks] Show some understanding of the effects of different pricing strategies [1-2marks]

Homework – Explain: Income elasticity Cross elasticity Advertising elasticity Use graphs to help you explain your answers. [12]

Lower Level Higher Level Q1 - Explain 2 pricing methods a business could use when introducing a new product to the market [4marks] Q1 - Explain 3 pricing methods a business could use when introducing a new product to the market [6marks] Q2 - What factors should a business take in to account when determining its selling price? [4marks] Q2 - Define full cost pricing & contribution pricing. Give an example for both. [4marks] Information for Q 3/4/5/6 The costs of production for a new toy are $10. The price of competitor’s products are : product A = $25, Product B = $20, Product C = $23, Product D - $22. Q3 - Explain one situation in which contribution pricing would seem more appropriate than full cost pricing. [8marks] Q3 - What price should the company sell the new toy at if they want to make a 100% mark up on how much it costs to produce [2marks] Q4 – What is meant by the term ‘collusion’ and why is it illegal in most countries? [4marks] Q4 - What price should the company sell the new toy at if uses competitive pricing [2marks] Q5 - Evaluate whether consumers benefit from a destroyer pricing strategy? [8marks] Q5 – What price should the company use if it uses penetration pricing [2marks] Q6 – What price should the company use if it uses a creaming pricing strategy [2marks]