The Marketing Mix: Price (Edexcel IGCSE Business)
The importance of price
Spec point —
4.3.2· Price
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Price is the only element of the marketing mix that relates directly to sales revenue and is vital to a business achieving its sales and marketing objectives
- By understanding their customers, competitors, and costs, businesses can set prices that maximise revenue and profitability
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Businesses need to select the most appropriate methods of pricing to ensure that they are able to make a profit whilst meeting the needs and expectations of customers
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A pricing strategy should reflect the brand and quality of the product
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The wrong strategy is likely to reduce the potential level of profitability
- E.g. A low price for a luxury-branded product may deter consumers who often purchase these goods as status symbols
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A business may use more than one method of pricing across its product range
- E.g. A large supermarket may offer premium-priced product ranges alongside a selection of loss leaders
Influences on price
Spec point —
4.3.2· Price
- A business needs to consider various factors when setting its pricing strategy
- Understanding these factors can help a business make informed decisions about its pricing and increase its chances of success
Factors to consider when choosing a pricing strategy
| Factor | Explanation |
|---|---|
| Number of USPs/ amount of differentiation | - Products with many USPs and high differentiation can command higher prices - E.g Dyson vacuum cleaners have unique features which allow the company to charge a premium price |
| Technology | - The use of online platforms and development of new markets have created new pricing strategies - E.g. Candy Crush Saga uses a freemium strategy where the initial game is free of charge, after which users have to pay for additional features - Charging for these features generates a very high profit margin |
| Level of competition | - In highly competitive markets businesses may need to set their prices low to remain competitive - E.g. The budget airline industry is highly competitive and airlines keep their prices low so as to increase demand - In less competitive markets, businesses may be able to set higher prices |
| Strength of the brand | - A strong brand with a loyal customer base can command higher prices - E.g. Nike's strong brand allows it to charge premium prices for its athletic shoes and apparel |
| Stage in the product life cycle | - In the introduction stage, prices may be set lower to attract customers and build market share - In the growth stage, prices can increase as demand for the product increases - In the maturity stage, prices may need to be lowered again |
| Costs and the need to make a profit | - Prices must cover the cost of production and provide a reasonable profit margin - E.g. A restaurant needs to consider the cost of ingredients, labour, rent, and other expenses when setting menu prices |
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Retailers have had to adjust their pricing strategie s to remain competitive in an online marketplace where customers can easily compare prices
- e.g www.comparethemarket.com **
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Pricing has changed to reflect the rise of price comparison through the use of** price matching policies
- Some retailers offer to match the prices of their rivals in order to prevent customers from switching to a competitor with a lower price
Exam Hint Pricing is influenced by other elements of the marketing mix, as well as the stages of the product life cycle. Consider these carefully when you make recommendations for suitable pricing strategies.
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