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  1. 1-1-the-nature-and-purpose-of-business
    3 主题
  2. 1-2-forms-of-business
    5 主题
  3. 1-3-the-external-environment
    5 主题
  4. 2-1-management-and-leadership
    3 主题
  5. 2-2-management-decision-making
    4 主题
  6. 2-3-the-role-and-importance-of-stakeholders
    3 主题
  7. 3-1-marketing-objectives
    1 主题
  8. 3-2-understanding-markets-and-customers
    5 主题
  9. 3-3-making-marketing-decisions
    2 主题
  10. 3-4-the-marketing-mix
    7 主题
  11. 4-1-operational-objectives
    2 主题
  12. 4-2-operational-performance
    1 主题
  13. 4-3-efficiency-and-productivity
    3 主题
  14. 4-4-quality
    1 主题
  15. 4-5-inventory-and-supply-chain-management
    3 主题
  16. 5-1-financial-objectives
    2 主题
  17. 5-2-financial-performance
    6 主题
  18. 5-3-sources-of-finance
    3 主题
  19. 5-4-cash-flow-and-profit
    1 主题
  20. 6-1-human-resource-objectives
    1 主题
  21. 6-2-human-resource-performance
    1 主题
  22. 6-3-organisational-design
    3 主题
  23. 6-4-human-resource-planning
    4 主题
  24. 6-5-motivation
    4 主题
  25. 6-6-improving-employer-employee-relations
    2 主题
  26. 7-1-mission-objectives-and-strategy
    4 主题
  27. 7-2-assessing-the-internal-position-of-a-business
    10 主题
  28. 7-3-changes-in-the-external-environment
    7 主题
  29. 7-4-the-competitive-environment
    1 主题
  30. 7-5-investment-appraisal
    2 主题
  31. 8-1-strategic-direction
    1 主题
  32. 8-2-strategic-positioning
    2 主题
  33. 9-1-changes-in-scale
    4 主题
  34. 9-2-innovation
    2 主题
  35. 9-3-globalisation-and-internationalisation
    4 主题
  36. 9-4-digital-technology
    1 主题
  37. 10-1-managing-change
    3 主题
  38. 10-2-organisational-culture
    2 主题
  39. 10-3-implementing-strategy
    2 主题
  40. 10-4-strategic-failure
    2 主题
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Influences on pricing decisions

  • Choosing the right pricing strategy is essential for a business to be profitable, competitive and successful in the long run

  • By understanding their customers, competitors and costs, businesses can set prices that maximise sales revenue and profits

  • Pricing can play a significant role in a brand’s market positioning and helps a firm compete with rivals

  • A range of factors can affect the decisions businesses make about how to price their products

Main influences on pricing

Influence

Explanation

Example

Costs

  • How much it takes to make, distribute and sell the product

  • A price must at least cover the unit cost, or the firm loses money

  • High fixed costs (aircraft, fuel) push airlines such as Ryanair to fill every seat and use “from £29” teaser fares; even a small rise in fuel triggers quick ticket‑price adjustments

Price elasticity of demand (PED)

  • How sensitive buyers are to a price change (see the Elasticity of Demand revision note)

  • Elastic demand means a small price rise could lower sales, so firms keep prices low and use promotions

  • Inelastic demand gives room for higher prices

  • H&M rarely raises the price of basic t-shirts because its teenage customers can switch to Primark easily

  • Nintendo held the Switch console near its launch price for years, knowing loyal gamers would still pay

Other elements of the marketing mix

  • The marketing message needs to be consistent

  • Premium features and luxury branding justify higher prices

  • Selling through discount stores often requires lower prices, while selling in boutiques allows for premium pricing

  • Offer-focused advertising can give customers an expectation of a bargain, restricting future price rises

  • Dyson’s Airwrap hair‑styler is priced at around £450 because its engineering, brand reputation and sleek design back the premium price

  • Gillette often discounts razor handles but prices blades high, knowing users will keep buying refills

Pricing approaches

  • There are many different pricing approaches a business can choose to adopt

Common pricing approaches

Four price tag illustrations showing pricing strategies: purple for penetration pricing, green for cost-plus, pink for price skimming and orange for dynamic pricing.
Common pricing approaches include penetration pricing, price skimming, cost-plus and dynamic pricing

Penetration pricing

  • Launching a product at a deliberately low price to win market share fast

  • The firm hopes a high volume will spread fixed costs and lock in customers before increasing the price later

    • E.g. Disney+ entered the UK in 2020 at £5.99 per month, well below many rival streaming services

Price skimming

  • Setting a high introductory price and lowering it over time

  • Early adopters pay more, helping the firm recoup research and launch costs; later price cuts open the market to the mass market

    • E.g. Sony’s PlayStation 5 was launched with a premium price, which was gradually reduced as supply increased and a slimmer model arrived

Cost‑plus pricing

  • Setting the selling price by adding a percentage markup to the unit cost

  • This method ensures every sale covers costs

    • E.g. many local cafés add, for example, a 60% markup to the cost of coffee beans, milk and labour to set prices

Dynamic pricing

  • Continuously adjusting prices in real time to reflect demand, supply and other conditions

  • Uses algorithms and data, such as time of day, inventory levels and competitor prices

    • E.g. Uber raises fares during times of peak demand and lowers them when demand falls

Approach

Advantages

Disadvantages

Penetration pricing

  • Rapid sales growth and market share

    • A low launch price tempts customers to try the product immediately, building a large customer base before rivals respond

  • Deters new entrants

    • Potential competitors see low profits and may decide the market is not worth entering

  • Low profit margins at the start

    • Very little is earned on each unit, so it needs to sell in high volumes to break even

  • Difficulty raising prices later

    • Customers can feel misled if prices rise sharply, which may damage trust

Price skimming

  • Quick recovery of research and development costs

    • High profit margins help pay back expensive design or technology investments quickly

  • Creates a prestige image

    • The initial high price signals exclusivity and high quality, helping the brand stand out

  • Attracts rivals

    • Once the price drops, competitors with cheaper versions may enter and reduce market share

  • Slower mass adoption

    • Budget-conscious consumers wait for later price cuts, delaying sales

Cost-plus pricing

  • Simple to calculate and explain

    • Managers need only accurate cost data and a chosen markup, so small firms do not need pricing specialists

  • Ensures profitability

    • As long as costs are correctly measured, every sale contributes a predictable amount to profit

  • Ignores customer and competitor factors

    • The price may end up too high for demand or too low to match rivals, missing out on potential revenue

  • Overpricing risk in elastic markets

    • Where buyers are price‑sensitive, even a modest markup could push them towards cheaper substitute products

Dynamic pricing

  • Maximises revenue in real time

    • Prices rise when demand is strong and fall to stimulate sales when demand is weak, smoothing overall income

  • Helps manage limited capacity

    • For airlines or ride‑sharing, higher prices at peak times ration scarce seats or cars to those who value them most

  • Perceived unfairness or unpredictability

    • Customers may feel exploited if prices surge suddenly, harming brand reputation and loyalty

  • Requires advanced data systems and constant oversight

    • Setting up algorithms and monitoring performance adds complexity and cost