Price

Pricing Strategies

Competitive Pricing

Psychological Pricing

Premium PricingPenetration

Pricing

Loss Leaders

Cost-plus pricing

Creaming /

skimming

Full-cost (absorption-cost)

pricing

Marginal-cost PricingPredatory

Pricing

Going-rate Pricing

Discrimination Pricing

Exam questionsWhat is meant by price elasticity of demand? [2]

The responsiveness for demand for a product when there is a change in price.

Price elasticityPr

ice

Quantity

P1

P2

Q1Q2

D

The percentage change in quantity demanded is greater than the percentage change in price

Price inelasticityPr

ice

Quantity

P1

P2

Q1 Q2

D

The percentage change in quantity demanded is less than the percentage change in price

Price elasticity of demand

% ∆ QD% ∆ P

PED is usually negative because a fall in price (-ve) usually results in a rise in demand (+ve)

1. Calculate the % ∆ P2. Calculate the % ∆ QDExample: PED=10/25 = 0.4

Old price New price Old demand New demand

100 80 3,000 2,000456 430 88 80300 299 243 130

If it is <1 is it negative

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

June 2005 paper 1Jomo 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 cost64,000

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 LevelQ1 - 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 3/4/5/6The 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]