Business theme 1 Flashcards
what does it mean if a product is price elastic
the demand for the product is sensitive to a change in price e.g if the price increases, demand may fall
what does it mean if a product is price inelastic
the demand for a product is not sensitive to a change in price e.g necessities
cost plus
business calculates the cost of production and then adds a markup to determine the final price
the markup covers the cost of production and the businesses desired profit margin
price skimming
businesses set a high initial price for a new product when it is first introduced to the market
businesses will then lower the price slowly to ensure sales continue
- helps recover marketing and development costs quickly
penetration pricing
businesses set a low price for a new product
- allows business to quickly capture market share and attract price sensitive customers
- business will then begin to raise the price once they have enough customers and brand awareness
predatory pricing
businesses set an extremely low price to drive competitors out of the market
- only used by larger companies who can afford to set such low prices
- illegal in many countries and it can harm customers by reducing choice in the market
psychological pricing
takes into account customers beliefs and emotions towards the product
- price set at £9.99 instead of £10, perceived as better value
what factors influence the choice of pricing strategy
number of USP’s / differentiation a product has
whether a product is price elastic / inelastic -products with many USP’s can command higher prices
level of competition in the market
strength of the brand - strong brand with loyal customer base can command higher prices
which stage the product is in, in the product life cycle - introduction, growth, maturity
costs + need to make a profit - prices must cover costs of production, provide a profit margin
Design mix
Function , aesthetics , cost
Marketing Mix
provides a framework for a business to create and implement successful marketing strategies
place, price, product, promotion
What are the changes in the design mix to reflect social trends
changes in atttitudes, behaviours, lifestyles
example: concerns of resource depletion
income elasticity of demand
reveals how responsive the change in quantity demanded is to a change in income
YED = income elasticity of demand
% change in quantity demanded / % change in income
Normal good
when a product has a positive YED value (necessities)
inferior good (<0)
a product has a negative YED value (quantity demanded for a product decreases when income increases)
