1. AS Business Studies Marketing
Price
AS Business Studies Marketing

2. Cost-based pricing Cost plus pricing
The business assesses the cost per unit and adds an amount on top (profit margin) of the calculated cost
Unit Cost $10
50% mark up on the cost
Selling Price

3. Cost Plus Pricing Exercise
Unit Cost $250 20% mark up on the cost Selling Price Unit Cost $ % mark up on the cost Unit Cost $400 75% mark up on the cost

4. Target Pricing
The price is determined by a required rate of return on a certain level of output or sales
A business sets a target on 100,000 units
Total Cost of 100,000 units $1,000,000
Required return 30%
Total Return
Price per unit (1,300,000/100,000)

5. Target Pricing Exercise
Total Cost of 50,000 units $250,000 Required return 50% Total Return Price per unit ( / ) Total Cost of 100,000 units $1,800,000 Required return 25% Total Cost of 50,000 units $600,000 Required return 33.3%

6. Full Cost (Absorption Cost) Pricing
The company attempts to calculate a unit cost for the product and adds a profit margin
Output ,000
Fixed Cost $100,000
Variable Cost $10
Total Variable Cost
Total Cost of Production
Average Cost (Unit Cost)
Profit margin of 25%
Selling price

7. Full Cost Pricing Exercise
Output 10,000 Fixed Cost $100,000 Variable Cost $10 Total Variable Cost Total Cost of Production Average Cost (Unit Cost) Profit margin of 25% Selling price

8. Full Cost Pricing Exercise
Output 25,000 Fixed Cost $100,000 Variable Cost $4 Profit Margin (25%) Output 80,000 Fixed Cost $400,000 Variable Cost $7 Profit Margin (50%)

9. Contribution Cost Pricing
Pricing does not try to allocate the fixed costs to specific products
A firm will calculate the variable cost per unit and add an extra amount (the contribution) for fixed costs
If enough units are sold then sales revenue will cover all fixed costs
Unit Cost $5
Fixed Cost $750,000
Contribution $2.50
Selling Price
Sales required to cover all costs

10. Contribution Cost Pricing Exercise
Variable Cost $10 Fixed Cost $1,500,000 Contribution $5 Selling Price Sales required to cover all costs Variable Cost $7 Fixed Cost $300,000 Contribution $3 Variable Cost $6 Fixed Cost $1,200,000 Contribution $6

11. Select and explain a suitable pricing strategy for the following products
New Range of Televisions
Cinema Tickets
New Fashion Magazine
Rolex Watches
Pepsi Cola

12. What determines Prices?
Costs of Production
Number and strength of competitors in the market
Price Elasticity of Demand
Branding/ Firm reputation or image
Whether the product does or does not have a USP
How much the consumer is willing to pay

13. Evaluate what is the most important factor in determining the price of Marlboro Cigarettes

14. Answering the essay question
Introduction: Key Terms
Main body: Analyse each factor that determines price and relate to Marlboro. Each factor should be one paragraph.
E.g. The costs of production are an important consideration for any business that is making a pricing decision. If the price Marlboro sets for its product does not cover the cost of producing it then with each sale the company will return a loss and will quickly fail. The difference between the cost of producing one unit and the selling price represents the firms profit margin.
Evaluation: Answer the initial question. This should be the identification of the most important factor(s) with clear reasoned judgement for your choice