a) Price

• Define the pricing strategy skimming


  Skimming is used when launching a new or improved product on the market. The price is initially set high to target consumers who are willing to pay higher prices. After a period of time the price will be reduced to attract other customers into the market.
• Define the pricing strategy penetration 


  This is used when a new product is being introduced onto a market which is already competitive. A firm will set a low entry price to attract customers. As customer loyalty is built up the price is increased towards the market price. Often used in confectionery and magazines.
• Define the pricing strategy competitor based


  This is when a business accepts the price competitors are charging and then sets their price at the same level or slightly lower in order to gain a competitive advantage. This operates in markets where there is strong competition and involves monitoring competitors closely.
• Define the pricing strategy cost based

  This involves working out the total costs of the business and adding on a percentage profit. This will result in profit as it will have covered its costs. They may not be able to sell the expected quantity however as competitors may have lower prices
• Define the pricing strategy destruction

  This strategy is used to destroy competitors and drive them out of business. It operates by reducing the price of products to attract customers and eliminate competition. Once competitors have been driven out prices can be raised again.
• Define the pricing strategy psychological

  This is meant to give customers the idea that they are getting a bargain as the price seems to be cheaper. An example of this is pricing something at £9.99 rather than £10.
• Define the pricing strategy price wars

  This is where businesses cut the prices of their goods lower than their competitors to attract customers and secure sales. This can be risky as competitors also slash their prices and the pattern continues. If pursued for a long time it would significantly cut profits and only the customer benefits.
• Explain the relationship between price and demand

  Demand is the quantity of a product which will be bought by consumers at a given price. For most products it is expected that when price rises so does quality. The demand curve for a product or service is downward sloping from left to right. As price increases people will pay buy less of a good and vise versa.

  
• Explain 2 factors which would affect the price of a product

  The first factor that would affect it is the type of product being marketed as a phone and a chocolate bar would be priced very differently.

  The second factor is the price consumers are willing to pay as luxury items are targeted at a wealthier market as that market can bear a higher price. Good being sold in less wealthy areas must be priced accordingly
• Explain 2 factors that would cause change in demand for products

  The first factor that can cause change is the price that is being charged for a good as the higher the price the lower the demand

  the second factor is the customers tastes and fashion as people will buy what they like, therefore creating demand