1. IGCSE Business Studies
Unit Price
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2. 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?
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3. Types of Pricing Strategies
Pricing Strategy
Demand-Based
Competitive
Cost/Supply-Based
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4. Demand-Based Strategies
Psychological Pricing
Price Skimming
Penetration Pricing
Promotional Pricing
Dynamic Pricing [also called price discrimination]
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5. 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
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6. 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
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7. Price Elasticity of Demand
Price Elasticity of Demand measures the relationship between the change in price and the change in quantity demanded.
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8. 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
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9. 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
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10. See worksheet
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