2.2

Question 1

what is PED?

Answer 1

the degree to which the quantity demanded of a product is affected by a price change

Question 2

what is elasticity?

Answer 2

a measure of the extent to which demand will change

Question 3

how do you calculate PED?

Answer 3

%change in quantity demanded / %change in price

Question 4

what does elastic mean?

Answer 4

price changes cause a larger % change in demand
demand is relatively responsive
value = beyond -1

Question 5

what does unitary mean?

Answer 5

demand changes by same % as price
value = -1

Question 6

what does perfectly inelastic mean?

Answer 6

price changes leave demand unaltered
value = 0

Question 7

what does inelastic mean?

Answer 7

demand changes by a smaller % than price
demand is relatively unresponsive
value = between 0 and -1

Question 8

what are the 6 factors influencing PED?

Answer 8

necessity
bought out of habit
number of substitutes and uniqueness of product
cost and time to switch
loyalty
consumer income and proportion spent

Question 9

what does a price increase mean for PED elastic products?
decrease?

Answer 9

sales revenue falls (affect on profit will depend on costs)
sales revenue rises

Question 10

what does a price increase mean for PED unitary products?
decrease?

Answer 10

sales revenue unchanged (good idea but depends on objectives)
sales revenue unchanged

Question 11

what does a price increase mean for PED inelastic products?
decrease?

Answer 11

sales revenue rises
sales revenue falls

Question 12

what are the 3 determinants of PED?

Answer 12

substitutes
time
market

Question 13

what does a niche market target?

Answer 13

specific market as higher quality

Question 14

what does PED mean for niche markets?

Answer 14

consumers are willing to pay more
demand is less responsive
price inelastic
as a result higher prices higher added value and demand will be less

Question 15

what does a mass market target?

Answer 15

the whole population

Question 16

what does PED mean for mass markets?

Answer 16

price is important to consumers
consumers are willing to pay less if there is lots of competition
demand is more responsive
price elastic
as a result lower prices smaller added value and greater demand

Question 17

what are the 6 types of pricing methods?

Answer 17

cost plus
skimming
penetration
predatory
competitive
psychological

Question 18

what is cost plus pricing?

Answer 18

when a % marker is added to the cost of production to calculate the selling price (TC per unit + %mark-up)

Question 19

what is skimming pricing?

Answer 19

setting a high initial price for a new product to recoup costs, they do this to target early adopters, once the market is ‘skimmed off’ they will lower their price

Question 20

what is penetration pricing?

Answer 20

setting a low initial price to get market share (mass markets) once the product is established the price may rise (used with elastic products)

Question 21

what is predatory pricing?

Answer 21

prices set low in the short term to force others out of the market price then put back up (used by dominant firms and less ethical)

Question 22

what is competitive pricing?

Answer 22

price based on competitor prices either price takers or leaders

Question 23

what is psychological pricing?

Answer 23

when firms set the price to entice customers by making it sound cheaper

Question 24

what are the 6 factors determining choice of price strategy?

Answer 24

number of USPs (amount of differentiation)
PED
level of competition in the business environment
strength of brand
stage in the product life cycle
costs and need to make a profit

Question 25

how have changes in pricing reflected social trends?

Answer 25

online sales have led to the frequent use of dynamic pricing price comparison sites have also contributed

Question 26

when does non-price competition occur?

Answer 26

when a firm distinguishes or differentiates its product

Question 27

what does product differentiation do?

Answer 27

provides a competitive advantage and shifts demand to the right e.g. quality, function and design features, imperfect information, advertising, location/convenience all of these can create a USP

Question 28

what impacts the choice of the promotional mix used? (4)?

Answer 28

the nature of the market ie local v national the nature of the product: B2C = persuasive, B2B = informative activities of competitors finance available

Question 29

what is a sunk cost?

Answer 29

a cost that can't be recovered and deters new entrants, firms will spend a lot on brand loyalty and respect custom e.g. promotion

Question 30

what are the 3 types of promotion?

Answer 30

advertising sales promotion direct marketing

Question 31

what does advertising have to be?

Answer 31

informative and persuasive e.g newspaper, social media, poster, tv & radio

Question 32

what is sales promotion?

Answer 32

a short term method to attract customers to buy e.g. competitions, special offers, free samples

Question 33

what is direct marketing?

Answer 33

any marketing activity that is directly aimed at the consumer e.g. direct and electronic mail, door to door selling and social media (new tech has made it easier and cheaper)

Question 34

what are the 5 types of distribution channels?

Answer 34

direct selling retailers wholesalers e-commerce multi channel distribution

Question 35

what is a wholesaler?

Answer 35

firms that buy large quantities of supplies from producers and sell them on in smaller quantities

Question 36

what is a multi channel distribution?

Answer 36

a combination of distribution channel methods

Question 37

what affects distribution decisions (6) ?

Answer 37

type of product market quantity and frequency geographical location cost degree of control

Question 38

what is Big Data?

Answer 38

the high volume, velocity and variety of information that combines with cost-effective, innovative information processing for better insight and decision making e.g. Mixpanel and Kapost (how much will a single tweet add to revenue)

Question 39

what are positives of Big Data?

Answer 39

less waste more efficient marketing

Question 40

what are negatives of Big Data?

Answer 40

privacy issues

Question 41

what is YED?

Answer 41

the responsiveness of consumers to changes in income

Question 42

what are the 2 types of goods?

Answer 42

normal (luxuries or necessities) and inferior

Question 43

what is a normal good?

Answer 43

have a positive income elasticity of demand

Question 44

what is an inferior good?

Answer 44

have a negative income elasticity of demand

Question 45

how do you calculate YED?

Answer 45

%change in quantity / %change in income

Question 46

what happens if the result of YED is negative?

Answer 46

demand decreases as income rises making it an inferior good with a negative income elasticity

Question 47

what happens if the result of YED is 0?

Answer 47

demand remains when income changes making it a necessity good with a 0 income elasticity

Question 48

what happens if the result of YED is 0-1?

Answer 48

demand increases by a smaller proportion than income making it a necessity good which is income inelastic

Question 49

what happens if the result of YED is 1?

Answer 49

demand changes proportionately with income making it a necessity good which has unit income elasticity

Question 50

what happens if the result of YED is 1+?

Answer 50

demand changes by a greater proportion than income making it a luxury good that is income elastic

Question 51

what is the YED relevance to firms?

Answer 51

as global standards of living increase we move to more luxury good and away from inferiors

Question 52

what are the 4 influences on YED?

Answer 52

type of product changes with time and fashion trends proportion of income spent economy/confidence

Question 53

what is the impact on firms of growth in economy?

Answer 53

incomes increase, consumers buy more normal goods, firms selling inferior goods may diversify into growing markets or find ways to add value

Question 54

what is the impact on firms in a recession?

Answer 54

incomes decrease, consumers buy more inferior goods, firms selling normal goods may consider lower cost alternatives for consumers