Marketing Mix Price

MARKETING
MIX
PRICE
LESSON OBJECTIVES
 Pricing methods: cost plus, competitive, penetration, skimming

and promotional; their benefits and limitations.
 Recommend and justify an appropriate pricing method in given

Circumstances.
 Understand the significance of price elasticity: difference between

price elastic demand and price inelastic demand; importance of the
concept in pricing decisions (knowledge of the formula and
calculations of PED will not be examined)
3
FACTORS TO CONSIDER
Your costs The state of the economy
Your company objectives

The company or brand
The competition image
Your product Your consumers /

customers
The market
Exchange rate?
THE IMPACT OF PSYCHOLOGY ON PRICE
DECISIONS
https://youtu.be/KYqvqScg_j8?si=hB6Ks_M84abCbgiL
5
PRICING
STRATEG
IES
6
COST-PLUS For example, the total cost of
PRICING making 2000 chocolate bars is
$2000. The business wants to make
Setting price by 50 per cent profit on each bar. The
adding a fixed amount calculation is as follows:
to the cost of
($2000 /2000) + 50% = $1.50 per
making the product bar is the selling price
(1 +0.50 = l.50)
The calculation to find 50% of the

selling price is as follows:
8
• Benefits
• The method is easy to apply.

• Different profit mark-ups could be used in different markets.
• Each product earns a profit for the business.
• Limitations
• Lose sales if the selling price is higher than competitors’ prices.

• A total profit will only be made if sufficient units of the product are
sold.
• There is no incentive to reduce costs – any increase in costs is just
9 passed on to the customer at a higher price.
CLASSWORK:
COMPLETE
ACTIVITY 13.1 IN
YOUR BOOK
HOMEWORK:
Read price strategies
summary on teams
COMPETITIVE PRICE
No differences between
Setting a price similar to that of P <=CP products (e.g Soap Power)
competitors’ products which
are already available in the
market
PENETRATION PRICING
New launches to go into
P < CP the market (e.g New
Setting a very low price to
chocolate bar)
attract customers to buy a
new product
11
PRICE
SKIMMING
Setting a high price for a new HIGH P
product that is unique or very
different from other products
on the market.
PROMOTIONAL
PRICE
P< BOGOF
Setting the price of a few
products at below cost to attract COSTS Get rid of the old stock
customers into the shop in the (Fashion clothes)
hope that they will buy other
products as well
12
STRATEGY USES BENEFITS LIMITATIONS
Retailers • Quick and The price might
easy to work be higher than
out price. competitors
COST-PLUS
• Makes sure which reduces
PRICING
that the price sales and profits.
covers all of
the costs.
Products similar Businesses can If the costs of
to others with compete on production are
many things they higher than
competitors if might be better competitors –
the business has at such as perhaps because
COMPETITIVE already a brand quality products, the product is of
PRICE image and or a higher quality –
customer loyalty customer then a
13
service. competitive price
HOME
WORK
Read the Benefits and
limitations of pricing
strategies and
complete activity 13.4
14
W RA P U P C O N C E P T S
WSH A KEY TERMS
W S H A M A S T E R I N G S K I L L S O F A N A LY S I S
15
16
PRICE ELASTICITY OF DEMAND
How will customers respond if we change the price?

Will this increase, decrease or barely affect the quantity
demanded?
17
SUBSTITUTIV
E GOODS
If there are many close substitutes

even if the price rises a small
percentage customers will respond
buying the substitute
18
What Are Elastic Goods?
Elastic goods are goods that have a significant change in demand or supply in
response to a change in price. Generally, these are goods that are not considered
necessities, or goods for which there are substitutes readily available.
Eg: Soft Drinks

Soft drinks aren't a necessity, so a big
price increase would cause people to
stop buying them or look for other
brands. A big decrease in price, however,
would be sure to attract more buyers.
19
What Are Inelastic Goods?
Inelastic goods don't have a significant change in demand or supply in response to a

price change. In general, these are goods that are considered necessary or without
many (or any) substitutes.
E.g. Life-Saving Medication

If a person requires a life-saving medication
(e.g. insulin), they'll need to buy it regardless
of the price. Price adjustments will have a
small effect on the demand.
20
Working by pairs list
of 5 elastic goods or
services and 5
inelastic goods or
services.
21
AO3 Analysis – developing the skill
• Analytical skills can be developed by forming chains of argument, or a series of

steps in an argument.
• You need to think about connecting the starting point to the end point, with a
series of steps in between linking together.
Point this leads to Point this leads to Point this leads to Point
AO3 Analysis – an example in practise
Explain one benefit to a business of them producing products that are of a high quality
High quality The business

Lower costs for
products are Fewer could lower its
the business
likely to have this leads to customer which results in which means that price to gain a
(no redo or give
less defects in complaints competitive
back money)
them advantage
leading to
Look at the connectives linking each
point together to form a chain
Other connectives could be; therefore,

this allows, this could cause, this will,
as a result An increase in An increase in
resulting in
sales revenue customers
AO3 Analysis – Activity 1 Mastering the skill of Analysis
• Sort the cards into the correct chain to explain:

how a business improving its efficiency will help it to become more competitive
• You have 5 minutes
Businesses being
An increase in
able to lower the If businesses use the
market share
selling prices of resources they have
their products more efficiently, their
Businesses are likely to average costs will fall
see an increase in sales
as more customers
choose their products A gain in
over competitors customers
AO3 Analysis – Activity 1 Answers
• Explain ‘how a business improving its efficiency will help it to become more competitive’
Businesses are likely

to see an increase in
If businesses use the Businesses being
sales as more
resources they have this leads to able to lower the as a result customers choose
more efficiently, their selling prices of their
their products over
average costs will fall products
competitors
this leads to
An increase in market
and therefore A gain in customers
share
A&B is a private limited company. It produces a well-known branded breakfast cereal
called Oatz which has a reputation for good quality. The cost of producing each box
of Oatz is $1.The cereal is sold in shops at a price of $2 per box. The prices of
competitors’ cereals range from $1.20 to $2.10 a box. The Marketing Manager says
‘We should change to a more competitive pricing strategy’ to increase sales. She
thinks the demand for Oatz is price elastic. A large supermarket has just
launched its ‘own brand’ of breakfast cereal and this is currently sold using
penetration pricing.
Do you think changing to a more competitive pricing strategy for

Oatz is a good idea? Justify your answer. [6]
26
Cereals will Increase
More customers
be cheaper this leads to this leads to
sales
can afford
than $2
Customers will Decrease

think there is this leads to
brand loyalty Decrease
this leads to
less quality and repeat market share
purchases
Write an answer using Evaluation to support

27
it
PRODUCT IN SELL OFF
DECLINE STAGE STOCKS
COVER SOME
COSTS/MORE
SPACE
LOWER PRICE
DEVELOP
NEW PRODUCT GAIN SALES COSTUMER
LOYALTY
28
HIGH PRICE
UNIQUE GET BACK

PRODUCT DEVELOPING
COSTS FASTER
INCREASE MARKET SHARE

BEFORE COMPETITORS COPY
IT
29

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MARKETING

 Pricing methods: cost plus, competitive, penetration, skimming

 Recommend and justify an appropriate pricing method in given

 Understand the significance of price elasticity: difference between

Your costs The state of the economy

Your company objectives

Your product Your consumers /

The calculation to find 50% of the

• The method is easy to apply.

• Lose sales if the selling price is higher than competitors’ prices.

WSH A KEY TERMS

How will customers respond if we change the price?

If there are many close substitutes

Eg: Soft Drinks

Inelastic goods don't have a significant change in demand or supply in response to a

E.g. Life-Saving Medication

• Analytical skills can be developed by forming chains of argument, or a series of

High quality The business

Other connectives could be; therefore,

• Sort the cards into the correct chain to explain:

Businesses are likely

Do you think changing to a more competitive pricing strategy for

Customers will Decrease

Write an answer using Evaluation to support

UNIQUE GET BACK

INCREASE MARKET SHARE

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