1. What is Price? The money charged for a product or service Everything that a customer has to give up in order to acquire a product or service Usually expressed in terms of £

2. Some Possible Business Objectives that Will Influence Pricing FinancialMarketing Maximise profit Achieve a target level of profits Achieve a target rate of return Maximise sales revenue Improve cash flow Maintain/improve market share Beat/prevent competition Increase sales Build a brand

3. Main Factors that Influence Pricing Pricing Decisions Costs Elasticity of Demand Product Life Cycle Market Share Marketing Objectives PositioningCompetitors

4. Competitors Significantly Influence How Pricing is Set Price takersHave no option but to charge the ruling market price Price makersAble to fix their own price Price leadersMarket leaders whose price changes are followed by rivals Price followersFollow the price-changing lead of the market leader

5. Price Skimming (1) Set a high price to maximise profit Product is sold to different market segments at different times Top segment is skimmed off first with the highest price Objective – Maximise profit per unit to achieve quick recovery of development costs

6. Price Skimming (2) Works well for products that create excitement amongst “early adopters” Best used in introduction or early growth stage of product life cycle Electronic items provide many great examples

7. Penetration Pricing (1) Opposite of price skimming Offer a product at a low introductory price Aim is to – Gain market share quickly – Build customer usage and loyalty – Build sales of higher-priced related items (“hook & bait” approach Price can be increased once target market share is reached

8. Penetration Pricing: Examples of “Hook & Bait” Penetration Pricing Sell Razor handles and inkjet printers at a low price to build customer usage Sell consumable items (blades & cartridges) at a much higher price

9. Price elastic demand means that a change in price will lead to a greater change in demand. Price inelastic means a change in price leads to a little or no change in demand.

10. Price elasticity of demand (PED) You will not be asked to calculate the PED in the examination but an understanding of the formula helps to understand the concept and could be used to help gain application marks in the examination.

11. Price elasticity of demand (PED)  Price elasticity of demand is a measure of how responsiveness demand is to a change in price  There is an inverse relationship between price and demand  As price goes up demand goes down  As price goes down demand goes up  But the question is by how much? Is the change in demand more than proportional to the change in demand or less than proportional? Price increases by 10% Demand falls by 5% PED is price inelastic as the fall in demand is less than the fall in price.

12. Price elasticity of demand (PED) Price increases by 10% Demand falls by 13% PED is price elastic as the fall in demand is greater than the fall in price. Price elastic demand means that demand is sensitive to price changes Price inelastic demand means that demand is not so sensitive to changes in price Can you think of products that are likely to be highly price elastic and some that are likely to be highly price inelastic? How price inelastic can a cheese sandwich really be?