First 814 words of the document:
back to basics
Ten things you 6 Price elasticity 9 Repeat purchase
need to know about Measuring the percentage impact on demand of a
percentage change in price.
When customers come back for more.
Example: Ryanair repeatedly buys Boeing 737 aircraft. Its
Example: if a 10% price cut boosts demand by 20%, that's latest order for 175 planes is worth an estimated $16 billion.
a price elasticity of ()2. Advantage: repeat orders are, on average, much cheaper
Advantage: knowing the price elasticity helps managers set to achieve than new customers.
the most profitable price. Disadvantage: repeat purchase can be passive, e.g. buying
Disadvantage: price elasticities change as competition and from a shop that is on the way to school. Shouldn't be
fashions change, so decisions made today may be based on confused with customer loyalty.
Ian Marcousé provides a framework of ten key concepts that you can base your a faulty estimate of elasticity.
7 Pricing psychology
1 Demand 4 Marketing business-
Setting a price based on customer psychology rather than
The level of customer interest in purchasing a product or production costs or competitors' prices.
service. Example: pricing a new perfume at £69.99, both to shout
Example: the demand for the Sun newspaper is 2.4 million Targeting business customers rather than households or quality (more expensive than Chanel No 5) and to imply an
copies a day.
Advantage: knowing demand (which may vary month by
Example: vehicle manufacturer JCB marketing to house-
attempt to keep the price down.
Advantage: allows for the subjective, less rational aspects
10 Value added
month throughout the year) helps a business to produce the building companies. of consumer behaviour.
right amounts of product and avoid stock wastage. Finding ways to stretch the selling price far beyond the cost
Advantage: marketing B2B focuses the company on tight Disadvantage: companies can be exposed for charging
of bought-in goods and services.
Disadvantage: there is a risk that a business might see targeting, e.g. using direct telephone selling. It is based less high prices for low-cost items.
demand as fixed. Better companies will see how price, on image, more on quality of product and service. Example: making people pay far more for chocolate than
distribution levels and the effectiveness of branding and the cost of the ingredients, e.g. by blowing air through
Disadvantage: marketing communications may be too drab
promotion can influence demand. chocolate to make it look bigger and therefore worth more
8 Product life cycle
to the consumer.
Advantage: it is the basis for covering overhead costs and
making a profit.
2 Market myopia The theory that all products follow a natural pattern of
birth, growth, maturity and decline. Disadvantage: some producers are tempted to deceive
customers, e.g. jars of cosmetics that look big but have
Example: manufactured cigarettes were launched in 1871.
Being short sighted about the market you are in. false, hollowed-out bottoms.
Sales peaked in 1971. Death by 2071?
Example: academic Theodore Levitt suggested that the US Advantage: it can help firms plan for how the marketing
railroad companies would never have disappeared if they mix should change with each stage of the life cycle.
had realised they were in the transportation business rather Disadvantage: it merely records past sales patterns for a
than the railway business. product. Does it really have predictive powers?
Advantage: encourages companies to question whether
they really understand their customers.
Disadvantage: might make businesses lose focus on their
3 Market segmentation
5 Marketing ethics
Subdividing a market to match products or services to the
needs of different customers. The moral principles that should underpin a company's
Example: rethinking smartphones to design one for marketing decision making.
children, one for OAPs and so on. Example: marketing a high-sugar snack as a healthy
Advantage: identifying a new segment helps the producer breakfast cereal would arguably show a lack of ethics.
establish an authentic image, hence differentiation and low Advantage: absolute ethical standards prevent customers
price elasticity. and staff from feeling distaste towards the business. Go to www.hoddereducation.co.uk/
businessreviewextras for a printable PDF
Disadvantage: subdividing a market into ever-smaller Disadvantage: potential customers may only see the price, of this centre spread. Display it in class
segments must eventually lead to low or no profitability. not the ethics underpinning it. or use it to kick-start your revision.
16 Business Review September 2013 17