Transcript ###Pricing Policies, Quality and Adding Value

http://www.bized.co.uk
Pricing Policies, Quality
and Adding Value
BTEC Business
Copyright 2007 – Biz/ed
http://www.bized.co.uk
Business Use
of Demand Curves
Firms can find analysis of their
products’ demand curves useful
as it helps them:
• Work out how changing their
prices will affect their revenue
• Assess how consumers will react
to changes in price
Copyright 2007 – Biz/ed
http://www.bized.co.uk
Price and Demand
• In general, the higher the price
charged for a good or service,
the lower the quantity that will be
demanded of that product
• This relationship
is not necessarily simple
• Let’s look at an example
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Demand Analysis
Price
50
Quantity
Total
Demanded Revenue
1000
50000
100
800
80000
150
400
60000
200
300
60000
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http://www.bized.co.uk
Demand Analysis
• At £100 per unit,
the firm earns
£80000 revenue
• If price rises
to £150 per unit,
revenue falls
to £60000
• This helps the firm
find its revenue
maximising price
Price
Quantity
Demanded
Total
Revenue
50
1000
50000
100
800
80000
150
400
60000
200
300
60000
Copyright 2007 – Biz/ed
http://www.bized.co.uk
Demand Analysis
• At any price below
£100 per unit, the firm
earns more by raising
its price
• At prices over £100
per unit, the firm’s
revenue falls
• The revenue
maximising price
is at around £100
per unit
Price
Quantity
Demanded
Total
Revenue
50
1000
50000
100
800
80000
150
400
60000
200
300
60000
Copyright 2007 – Biz/ed
http://www.bized.co.uk
Pricing Policies
If a firm has the power
in its market to set its own price,
it can adopt a pricing policy:
• Market penetration pricing
• Destroyer pricing
• Follow-the-leader pricing
• Skimming
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http://www.bized.co.uk
Pricing Policies
Find out more about these policies
in your research time.
‘Premium’ pricing means charging
higher prices to certain segments
of their market.
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http://www.bized.co.uk
Adding Value
This is where raw materials or
component parts are processed
to boost their value when they
are sold on.
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Advertising
Firms’ pricing policies can be made
to work better through the use
of advertising.
Advertising is included under
‘Promotion’ as part of the Marketing
Mix. Its aim is either
• to inform consumers
or
• to persuade them to buy a particular
product or range of products.
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http://www.bized.co.uk
Advertising
• In oligopoly markets, advertising
is often used to differentiate
one firm’s products from those
of its competitors
• Firms adopting a market skimming
policy use advertising to persuade
consumers to demand their
premium product
Copyright 2007 – Biz/ed