TOPIC: Topic 4: Marketing LESSON TITLE: Price ElasticityLEARNING INTENTION: To understand the how demand and supply affect pricing strategies.

COMPETENCY FOCUS:Creativity: learners will develop skills in creativity and design by firstly looking at how promotion is used in business to help them to reach their goals and secondly, to design their own promotional campaign responding to a creative brief from the client. Reasoning: Learners will develop skills in reasoning as after providing advantages and disadvantages for the use of the promotional mix, you will be required to make a reasoned judgment. [IB Learner Profile Development:Thinker]

Success CriteriaBy the end of the lesson, I can…

1) To recall the formulae for calculating price elasticity of demand2) To apply the formulae for calculating PED to a given situation3) Analyse the relationship between elasticities and the product life cycle.

SMSC: You will assess the organisational culture of businesses in terms of fundamental structure, purpose and strategy development.

CRITICAL THINKING KEY:

Knowledge Application Analysis Evaluation

The Marketing Mix

Also known as the 4P’s (product)/7P’s (service) Businesses must consider its marketing mix in order

to market its products successfully To meet customer’s wants/needs, marketers must

create the right product, at the right time, at the right price, make it available at the right place and let customers know about it through promotion.

The Marketing Mix

[www.bbc.co.uk]

PRICEPricing Strategies Price Skimming (charging higher price at first) Penetration Pricing (Set a low price to gain a foothold in the

market) Price Leader (Leader in market, others follow) Destroyer Pricing (Set really low price to eliminate competition

from market) Price Discrimination (charging different prices to different

customers) Psychological Pricing (£9.99) Cost+ Pricing (‘bottom-line’ + extra) Contribution Pricing (Contribution towards fixed costs) Loss Leaders (Economy Pricing) (very low price to attract

customers)

Economic EnvironmentThe Business Cycle

Increase in consumer spendingInc in house pricesLow unemployment

Inc in GDPReduced unemploymentIncreased business growth

High unemploymentLow demand for productsLow consumer spendingLow business growth

1) Supply• The supply of a product is the quantity of a product a

supplier is willing to provide, at different prices.

This is a straightforward ‘supply’ curve. When demand for your products is high, then the business will usually

supply more products to get more profit.

1) Supply

How easy a business can supply more products depends on:

- Availability of raw materials- Logistics (getting the goods to the

customers)- Competition for raw materials- Government support

2) Demand• The ‘demand’ of a product is the quantity of a

product a customer will buy at a given price.

This is a straightforward ‘demand’ curve. When price is low, demand for your products is high. At lower prices, products are more affordable to people.

2) Demand

A number of factors influence the demand for a product:- Affordability- Competition- Level of substitutes- Level of income (inferior goods)- Wants and needs of customers- Seasonal variations

Price Elasticity of Demand (PED)How a price increase/decrease affects the quantity demanded.

PED: % change in quantity demanded% change in price

Inelastic = a change in price doesn’t affect demand (<1)Elastic = a price increase will lower demand (>1)

Price Elasticity of Demand (PED)

TASK Complete activity 27.5, p.g 289

Income Elasticity of Demand (YED)YED: measures the responsiveness of demand

following changes in consumer’s income.

YED = % change in demand% change in income

Cross Elasticity of Demand (XED)XED: measures the responsiveness of demand

following a change in price of another product.

XED = % change in demand for product X% change in price for product y

Advertising Elasticity of Demand (AED)

AED: measures the responsiveness of demand for a product following a change in advertising spend.

AED = % change in demand for product% change in advertising spend on

product

Application of Elasticity

How can elasticity be applied at each stage of the product life cycle (PLC)?

TASK: CASE STUDY

Activity 27.7, p.g. 290