Edexcel Business A Level Revision

Pricing is often one of the most difficult things to get right in business. There are several factors a business needs to consider in setting a price: COMPETITORS – a huge impact on pricing decisions. The relative market shares (or market strength) of competitors influences whether a business can set prices independently, or whether it has to follow the lead shown by competitors COSTS – a business cannot ignore the cost of production or buying a product when it comes to setting a selling price. In the long-term, a business will fail if it sells for less than cost, or if its gross profit margin is too low to cover the fixed costs of the business. THE STATE OF THE MARKET FOR THE PRODUCT ( SUPPLY AND DEMAND) – if there is a high demand for the product, but a shortage of supply, then the business can put prices up. THE STATE OF THE ECONOMY (EXTERNAL SHOCKS) – some products are more sensitive to changes in unemployment and workers wages than others. Makers of luxury pr...

Branding - A promotional methods that involves the creation of an identity for the business that distinguishes that firm and it's products from other firms. Corporate branding - attaches a perception and promise to the goods and services associated with that brand e.g. quality, customer service, corporate culture. Branding can add value to a product allowing firms to charge higher prices. Ultimately leads to brand loyalty whereby customers will continue to buy products from that firm. Organisations spend enormous amounts of time and money branding their company and products. Brand recognition come in many forms including: • Celebrity endorsement • Font • Shape • Character • Colour • Jingle • Logo • Image • Slogan • Strapline Branding is traditional in business associated with giving a unique recognisable characteristic to a product or corporate image e.g. Toblerone's unique shape or Heinz's shade of green. Th...

Brand - product that is easily distinguished from other products so that it can be easily communicated and effectively marked. A brand name is the name of the distinctive product. The key business benefits of effective branding are: ▪ It adds significant value (From Customer POV) ▪ Business is able to charge higher prices and demand is more price inelastic. ▪Branding builds customer loyalty and aspiration. Types of Brands Product Brand - Brands associated with specific products. Fast moving consumer goods brands (FMGG) are some of the best examples. Examples of such products are; Marmite, Persil , PotNoodle, Crest. Service Brand - Brands that add perceived value to services, either delivered face to face or via online and apps. Examples of such products are; Dropbox, View , Uber, Netflix Umbrella (Family) Brand - Brands that are assigned to more than one product. Umbrella branding makes different product lines easily identifiable by the consumer by groupin...

Promotion - The component of the marketing mix that informs and persuades customers about the product in order to sell that product. Promotion is designed to create awareness, interest, desire and action (AIDA) Promotion = INFORM AND PERSUADE The main aim of promotion is to ensure that customers are aware of the existence and positioning of products . Promotion is also used to persuade customers that the product is better than competing products and to remind customers about why they may want to buy. PROMOTIONAL MIX The promotional Mix describes the promotional methods that a business uses to pursue it's marketing objectives. The main elements of the mix are: ▪Advertising (offline and online) ▪Sales promotion ▪Public relations ▪Merchandising PROMOTIONAL METHODS 1) PUBLIC RELATIONS Involves communicating with the media such as newspapers, television and radio in order to get favourable publicity for the organisation. Guarantee of it always being ...

Product Portfolio analysis - assesses the position of each product or brand in a firm's portfolio to help determine the right marketing strategy for each. Product Portfolio - range of items sold by a business. It can be analysed using the Boston Matrix. Boston Matrix - A model used to analyse the strategic position of product and brand portfolios. The Boston Matrix categorises the products into one of four different areas, based on: ▪ Market Share - does the product being sold have a low or high market share? ▪ Market Growth - are the numbers of potential customers in the market growing or not? One product is too big a risk, product portfolio is less risky as there is various products in which to receive financial gain. The four categories can be described as followed: 1) STARS ( HIGH MARKET SHARE AND HIGH GROWTH RATE) Strategy : ▪Invest to sustain growth ▪Maintain or build market share ▪Repel challenges from competitors ▪Create barriers to entry ...

Psychological pricing - occurs when a firm sets a price for the product in order to entice the customer into making a purchase by making it sound cheaper than it actually it is. A common example of psychological pricing is when a firm charges £9.99 rather than £10.00 ADVANTAGES 1) Larger purchases This practice encourages larger purchases. For instance, a customer comparing two products, £15 and the other at £18.99; may purchase the higher priced item because it "seems" fairly close. The theory behind psychological pricing suggests, in this case, that the buyer would perceive only roughly a £3 difference in the products rather than a nearly £4 difference. 2) Encourages impulse buys Psychological pricing is intended to persuade irrational buyers who don't logic out the fact that there is just a one pence difference between £9.99 and £10. Given that premise, this technique also helps motivate impulse buys on sales items a merchandise displays in or near th...

Competitive pricing (Loss leader) - Setting the price of a product or service based on what the competition is charging. This pricing method is used more often by businesses selling similar products, since service can vary from business to business, while the attributes of a product remain similar. Loss leader - is a product prominently displayed and advertised and priced below the normal price and even below cost to the seller. Business try to compete in various aspects of the marketing mix. The use of loss leaders is a method of sales promotion. A loss leader is a product priced below cost-price in order to attract consumers into a shop or online store. The purpose of making a product a loss leader is to encourage customers to make further purchases of profitable goods while they are in the shop. Aim : encourage people to buy complementary goods at full price. ADVANTAGE ▪ If a business undercuts it's competitors on price, new customers may be attracted and exi...

Predatory pricing - When prices are set low for a short period of time to force competitors out of the market. Prices are then put back to where they were previously or even higher. This strategy is used by dominant businesses, who can afford to make a loss in the short run, to force new entrants out of the market. This is deemed as illegal in the UK. Once existing firms have been driven out and entry of new firms deterred, it can raise its prices. This is ANTI-COMPETITIVE and therefore not in the best interest of consumers in a market. The existing competitors in the market see the new entrant about to launch - and immediately begin to lower prices to retain their customers If the new entrants cannot match the lower price (or provide a product which customers still belive represents value for money) then they may have to choose not to enter the market. The big loser in this is the customers. They are denied a wider choice in products. This therefore means price...

Penetration Pricing - Offering a significantly lower price than normal in an attempt to maximise volume sold and to build an installed base of loyal product users/customers Example - Broadband companies or telephone companies e.g BT or Virgin Involves setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. The strategy aims to encourage customers to switch to the new product because of the lower price. Penetration pricing is often used to support the launch of a new product and works best when a product enters a market with relatively little PRODUCT DIFFERENTIATION and when demand is ELASTIC - so a lower price than rival products is a competitive weapon. ☆ THIS IS THE OPPOSITE OF PRICE SKIMMING ☆ Aims: • Gain market share quickly • Build customer usage and loyalty • Build sales of higher priced related items ("Hook and bait" approach) Price can be increased once target market share is ...

Price Skimming - Charging a premium price when a product is first launched in order to maximise revenue per unit. The product can be sold in different market segments at different times. The top segment is skimmed off first with the highest price. Example : Apple IPhone or any other electrical device Early Adopters - People who are prepared to pay the highest price to have the latest product or service on the market Objective : Maximise profit per unit to achieve quick recovery of development costs. Works well for products that create excitement amongst " EARLY ADOPTERS ". Or for products that are new and face little or no competition. This is type of pricing strategy is typically used in the introduction stage of the product life cycle. DRAWBACKS 1) CANNOT LAST FOR LONG Price Skimming as a strategy cannot last for long as competitors will soon launch rival products that put pressure on the price. 2) DISTRIBUTION CAN BE A CHALLENGE Distribution (P...

Cost-plus pricing - Price is set by applying a percentage margin based on the unit costs of production or supply. Mark up - the amount added to the cost price of goods to cover overheads and profit. If a business wants to operate profitably, then by definition it's pricing must take some account of the costs of production or operation. ▪ Cost is an important influence on pricing ▪ Overtime a price must be more than the related costs in order to make a profit ▪ Popular method of cost-based pricing is " mark-up " - widely used in retailing. An example of basing price using a mark-up approach would be: Total costs for producing 10,000 units = £100,000 Cost per Unit = £10 Add mark up 100% of cost = £10 Selling price = cost + mark up = £20 ADVANTAGES 1) Easy to calculate 2) Price increases can be justified when costs rise 3) Managers can be confident each product is being sold at a profit DISADVANTAGES 1) Ignores price elasticity of de...

Income Elasticity of demand - measures the relationship between A CHANGE IN QUANTITY DEMANDED FOR GOOD X and A CHANGE IN REAL INCOME . It also shows how responsive the demand for a product is to a change in someone's  (real) income. Formula for YED or IED: % CHANGE IN QUANTITY DEMANDED ÷  % CHANGE IN REAL INCOME ( USE IF GIVEN PERCENTAGES LIKE A 10% INCREASE ) or Y÷Q × Change in Quantity ÷ Change in income  (Y)  ( USE IF GIVEN ABSOLUTE NUMBERS/ WHOLE NUMBERS ) ( NORMAL GOODS ) (+) ▪IF INCOME GOES UP ▪ DEMAND FOR THE GOOD GOES UP ( INFERIOR GOODS ) (-) ▪IF INCOME GOES DOWN ▪ DEMAND FOR THE GOOD GOES UP EXAMPLE 1) Steak If income rises from £100 to £120 And demand for steak rises from 40 to 60 The YED is as follows: 100÷40 × 20 ÷ 20 = + 2.5 After getting this answer we must analyse 2 factors; ▪Sign ▪Size The SIGN here is positive (+). This tells us that this is a NORMAL GOOD . That means our demand changes in the sa...