The marketing mix: price · IGCSE Business

Outline two pricing methods Miguel could use. Award 1 mark for each relevant method (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:

• Cost-plus pricing [k] to cover the costs of the gym [app]
• Penetration pricing [k] as it is a new business [app]
• Competitive / competition pricing [k] based on the location [app]
• (Price) skimming [k] for some of the classes [app]
• Promotional pricing [k] based on its market research results [app] Other appropriate responses should be credited.

Explain two pricing methods a new business might use. Which is likely to be the best method to use? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to which is the best pricing method for a new business to use. Points might include:

• Cost-plus [k] by adding a percentage onto the costs of production [an] it is easy to calculate [an]
• Penetration pricing [k] setting a lower price than competitors [an] could attract customers [an]
• Competitive pricing [k] setting a price similar/just below competitors [an] which may not cover costs [an]
• Price skimming [k] allows the business to recover development costs quicker [an] may lead to low sales [an]
• Promotional pricing [k] Other appropriate responses should be credited. Justification might include: Cost-plus pricing [k] is easy to calculate [an]. Price skimming [k] allows the business to recover development costs quickly [an]. Cost-plus pricing is the best method as the business will make profit on each item sold [eval] whereas with price skimming they may not attract customers to their new business [eval].

Outline two factors MDZ’s Marketing Director should consider when deciding the price of the new product. Award 1 mark for each relevant factor (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:

• Brand image [k] as wants to act in an ethical way [app]
• Cost of production or examples i.e. cost of materials/labour [k] as have 30 employees [app]
• Competition / price of competitors’ products [k] for chocolate [app]
• Whether product is unique / availability of substitutes [k]
• Size of market / niche market / mass market / target market / who selling to / level of demand / price elasticity of demand [k]
• Business objective [k]
• Profit margin / added value [k]
• Quality [k]
• Government or legal controls / tax [k] Other appropriate responses should be credited.

Explain two advantages and two disadvantages for CTD of using cost- 8 plus pricing. Award 1 mark for each advantage / disadvantage (max 4). Award a maximum of 1 additional mark for each explanation applied to the business. Advantages might include:

• The method is easy to apply – when producing desserts
• Different profit mark-ups can be used for different products in the café
• Each product earns a profit for the business
• Ensures costs are covered. Disadvantages might include:
• Sales could be lost if the price is higher than competitors’ price – for the high-quality products
• A total profit for the business overall will only be made if sufficient individual products are sold – by the sole trader
• There is no incentive to reduce costs / higher costs are just passed on to the customer
• Does not take account of market demand. For example: The method is easy to apply (1) to producing desserts (app). Application could include: café; 8 production employees; work in the kitchen; desserts; high-quality products; good reputation; food and drinks; set-up 4 years ago; tea / coffee; sole trader; 3 employees serving customers; expand to a second café; interest rates increasing from 2% to 6%; create brand loyalty.