Marketing Mix: Price (Cambridge (CIE) A Level Business): Revision Note

How much it takes to make, distribute and sell the product

A price must at least cover the unit cost, or the firm loses money

High fixed costs (aircraft, fuel) push airlines such as Ryanair to fill every seat and use "from £29” teaser fares; even a small rise in fuel triggers quick ticket‑price adjustments

How sensitive buyers are to a price change

Elastic demand means a small price rise could lower sales, so firms keep prices low and use promotions

Inelastic demand gives room for higher prices

H&M rarely raises the price of basic t-shirts because its teenage customers can switch to Primark easily

Nintendo held the Switch console near its launch price for years, knowing loyal gamers would still pay

The marketing message needs to be consistent

Premium features and luxury branding justify higher prices

Selling through discount stores often requires lower prices, while selling in boutiques allows for premium pricing

Offer-focused advertising can give customers an expectation of a bargain, restricting future price rises

Dyson’s Airwrap hair‑styler is priced at around £450 because its engineering, brand reputation and sleek design back the premium price

Gillette often discounts razor handles but prices blades high, knowing users will keep buying refills

Consumer familiarity

• Customers may be more likely to accept products because they align with their expectations

• Seen as fair and reasonable, which can improve brand image and increase customer loyalty

Market share

• Helps gain or maintain market share by offering prices that are in line with or slightly below those of rivals

• Particularly important in price-sensitive markets

Flexibility

• If a competitor lowers prices, a business can adjust its own prices accordingly

• Avoids losing market share whilst waiting for the pricing strategy to be changed

Lower profit margins

• If prices are constantly pushed down to match/beat competitors, it is difficult to maintain healthy profits

• Challenging to increase prices even if there are increases in production costs

Brand differentiation

• May not allow for differentiation based on features or quality

• If products are perceived as similar, consumers make purchasing decisions solely based on price

Race to the bottom

• Constantly adjusting prices can lead to a situation where prices keep dropping regardless of the actual value of the product

• Limits a businesses ability to set prices based on costs or USP

Rapid sales growth and market share

• A low launch price tempts customers to try the product immediately, building a large customer base before rivals respond

Deters new entrants

• Potential competitors see low profits and may decide the market is not worth entering

Low profit margins at the start

• Very little is earned on each unit, so it needs to sell in high volumes to break even

Difficulty raising prices later

• Customers can feel misled if prices rise sharply, which may damage trust

Quick recovery of research and development costs

• High profit margins help pay back expensive design or technology investments quickly

Creates a prestige image

• The initial high price signals exclusivity and high quality, helping the brand stand out

Attracts rivals

• Once the price drops, competitors with cheaper versions may enter and reduce market share

Slower mass adoption

• Budget-conscious consumers wait for later price cuts, delaying sales

Some consumers benefit from lower prices, especially those who are more price-sensitive (e.g. students or pensioners)

In some cases, higher prices reduce demand, which can be positive if it improves the service

• e.g. train services may be less crowded

Total revenue increases, as the firm can charge different prices to different groups based on their willingness to pay

Can help cover fixed costs and support services that may not survive under a single price model

Many consumers lose out by paying higher prices than others for the same product or service

Can be seen as unfair if those paying more receive no extra benefit

Setting up and enforcing price discrimination, such as requiring ID or monitoring purchase patterns, can increase average costs and require more complex IT systems

Maximises revenue in real time

• Prices rise when demand is strong and fall to stimulate sales when demand is weak, smoothing overall income

Helps manage limited capacity

• For airlines or ride‑sharing, higher prices at peak times ration scarce seats or cars to those who value them most

Perceived unfairness or unpredictability

• Customers may feel exploited if prices surge suddenly, harming brand reputation and loyalty

Requires advanced data systems and constant oversight

• Setting up algorithms and monitoring performance adds complexity and cost

Simple and quick to calculate

• The business sets the price by adding a fixed profit margin to the cost, which is easy to apply and understand

Ensures a profit is made on each item sold

• As long as the mark-up covers costs, the business can be confident it won’t sell at a loss

Ignores customer demand and willingness to pay

• The price is based on internal costs, not on what the customer values or is willing to pay

Does not consider competitor pricing

• This method may result in prices that are too high or too low compared to rival products

Creates the perception of better value

• Pricing items at £9.99 instead of £10 can make them seem noticeably cheaper to consumers

May be seen as manipulative

• Some customers may view this strategy as a trick, which can damage trust in the brand

Can increase sales without changing costs

• A small price adjustment can increase demand while keeping profit margins almost the same

Not always effective for high-end products

• In premium markets, customers may associate low or odd pricing with lower quality