IGCSE Business Studies
Unit 3.3.1 - Price
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Pricing considerations
Competitors prices
Consumers
• Can you compete
• Can you charger lower?
• How much are they
willing to pay?
Costs of production
• What’s the lowest price
you can charge?
Objectives
• Do you want growth or
profit or survival?
Government influence
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• What are tax rates?
• Any subsidies available?
Types of Pricing Strategies
Pricing
Strategy
DemandBased
Competitive
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Cost/SupplyBased
Demand-Based Strategies
• Psychological Pricing
• Price Skimming
• Penetration Pricing
• Promotional Pricing
• Dynamic Pricing [also called price
discrimination]
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Cost/Supply-Based Strategies
• Cost-based Pricing
This is when a firm finds out the average
unit cost of production and then adds
a % on for profit.
Sales price per unit = Total Cost +% profit
Total Output
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Competitive Market Pricing
• Destroyer / Predatory Pricing – this is
when prices are set deliberately low –
often lower than costs – so that
competitors are forced out of the
market
• Price wars – this is when firms compete
on driving price down in order to gain
the most consumers
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Price Elasticity of Demand
• Price Elasticity of Demand measures
the relationship between the change
in price and the change in quantity
demanded.
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Elasticities
• Inelastic goods – the %
change in price is larger
than the % change in
quantity demanded
• Elastic goods – the %
change in price is smaller
than the % change in
quantity demanded
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Price Discrimination
• Price Discrimination is charging different prices to
different users or market segments for the same
product.
• If you know that someone needs a product, then
their demand will be very inelastic. You can
therefore put the price up for these people, whilst
for people that don't need it or even want it, you
could lower the price as their demand is elastic. In
each case your revenue would go up. This is done
for things such as cinema tickets (pensioners pay
less, working earners pay more) or airline tickets. This
is sometimes also known as dynamic pricing
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See worksheet
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