Business Studies Marketing Mix Noteseditedforrevision

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Business Studies Angela Emma Rudd BMA
Marketing Mix ­ The Price
The price of a product or service is important in whether people buy it or not. When
considering the price it is important to place it in the context of the other elements of the mix
and the buyer's circumstances.
The Price of a Product will depend on a Range of Factors.
The Cost of Producing a Unit
Although in the short run a firm may sell an item at a loss to get it established in a market, in
the long run a product usually has to generate a profit. This means the price has to be greater
than the cost per unit.
The price a firm sets must take account of competitor's prices. If competitors are offering a
similar product or service and it is easy to switch from one to the other, firms are likely to set
similar prices. Wherever possible a firm will stress the particular benefits of what it is offering
so it can justify a higher price. If a customer believes a product provides better value for
money then he / she will may still buy it even if it is more expensive.
The Firm's Objectives
The price charged by a firm will be determined by its objectives. If a firm has a particular
profit target this will influence the price that is set per unit. If it wants to achieve £10000 profit
and it expects to sell 20000 units, it must make £0.50 profit per unit.
The Level of Demand
The price a firm can charge naturally depends on how much people are able and willing to
spend. If demand is high the firm may be able to charge a higher price. However demand
cannot be estimated accurately in advance for this reason many firms base their pricing on
their costs.
The Stage in the Product Life Cycle
The price of a product is likely to be changed at different stages in the product life cycle. For
example when the price is at the maturity stage the price may need to be reduced to avoid
losing sales to competitors.
The Rest of the Mix
The price a firm charges depends on the other elements of the marketing mix. For example if
the product is heavily branded the firm may be able to charge a higher price.
Pricing Strategies for Product Launch
When a product is first launched into a market the firm will have to decide what price to
Options include:
Penetration pricing ­ Uses a low price to enter the market and gain market share.
Price skimming ­ Uses a high price to enter the market. Even though the price is
high some people may be eager to try a new product. Once sales from this group of
people have been exhausted, the price can begin to drop to attract a new market
segment. When this segment is exhausted the price can drop again. This strategy is
appropriate if the firm can protect its idea or invention so that competitors cannot

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Business Studies Angela Emma Rudd BMA
enter with a cheaper version. This strategy is often used with new technology i.e.
computers etc.
Competitive pricing ­ Some firms set their price at the same levels as their
competitors. Competitive pricing is common when consumers can make a direct
comparison between different products.…read more

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Business Studies Angela Emma Rudd BMA
design/layout of the house, the area its in local schools etc, people may be willing to pay more
if the other factors are positive. On the other hand there may be no obvious difference in
brands when buying light bulbs so therefore the price becomes more important than the buying
The price is more likely to be important when you can compare goods easily.…read more

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Business Studies Angela Emma Rudd BMA
possible. These types of goods are called convenience items because consumers are not
willing to travel far to buy them.
With products such as personal computers, vacuum cleaners, microwaves and so on
consumers usually want to compare the features and prices of different brands.
Manufacturers of these need to get them distributed to certain stores where customers expect
to go and find them.…read more

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Business Studies Angela Emma Rudd BMA
Personal Selling Personal selling is based on Twoway Can be expensive
facetoface contact with communication Can only reach a
customers. This may be used can answer limited of
by manufacturers to get customer enquiries.…read more


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