What is penetration pricing?

Penetration pricing is setting a low price when a product is launched to win customers quickly. The price is raised once the product has built up sales.

What are the benefits and drawbacks of penetration pricing?

Penetration pricing can quickly gain market share and customer loyalty. Profit per unit is low, and customers may leave when the price rises.

What is competitive pricing?

Competitive pricing is setting a price similar to rivals' prices for the same kind of product. Petrol stations usually price close to nearby competitors.

What is a loss leader?

A loss leader is a product sold at or below cost to attract customers. The business hopes customers will buy other, full-price products at the same time.

AQA GCSE Business 8132

Business in the Real World

Topic overview What a business is and why people start one Goods, services, needs, wants and factors of production Business sectors, entrepreneurs and a changing business environment Sole traders, partnerships, limited companies and not-for-profit organisations Business aims and objectives Why business objectives differ and change Stakeholders and their influence on businesses Factors affecting business location Business planning and basic financial terms Expanding a business and economies of scale

Influences on Business

Topic overview E-commerce and digital communication Ethics, the environment and sustainability Interest rates, employment and consumer spending Globalisation and exchange rates Employment, health and safety and consumer law Competition, risk and uncertainty

Business Operations

Topic overview Job, flow and lean production Managing stock: just in time and just in case Suppliers, procurement, logistics and supply chains Quality control, quality assurance and TQM Customer service and the sales process

Human Resources

Topic overview Organisational structures, span of control and delegation Recruitment, selection and contracts of employment Financial and non-financial methods of motivation Induction, on-the-job and off-the-job training

Marketing

Topic overview Identifying and satisfying customer needs Market segmentation Purpose of market research and primary and secondary research Market research methods and interpreting findings Pricing methods and factors affecting price New products, USP, brand image and the Boston Matrix Product life cycle and extension strategies Promotional methods and the promotional mix Channels of distribution, e-commerce and m-commerce The integrated marketing mix

Finance

Topic overview Sources of finance Cash flow and cash flow forecasts Financial calculations and average rate of return Break-even charts and margin of safety Income statements and statements of financial position Profit margins and judging financial performance

Marketing

Pricing methods and factors affecting price

3 things to know
Paper 2

Overview

Price skimming, penetration and competitive pricing, loss leaders, cost-plus pricing and mark-up calculations, the link between price and demand, and how costs, competition and the life cycle shape price.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

What is price skimming, and when does it work?

Key term

What is price skimming?

Key term

What are the benefits and drawbacks of price skimming?

Questions from this subtopic

Each one with the model answer underneath.

1
What is price skimming?
Model answer
Price skimming is setting a high price when a product is first launched, then lowering it over time. Price skimming suits new, innovative products such as the latest games console.
2
What are the benefits and drawbacks of price skimming?
Model answer
Price skimming earns a high profit per unit from keen early buyers and gives a quality image. The high price limits sales and attracts competitors into the market.
3
What is penetration pricing?
Model answer
Penetration pricing is setting a low price when a product is launched to win customers quickly. The price is raised once the product has built up sales.
4
What are the benefits and drawbacks of penetration pricing?
Model answer
Penetration pricing can quickly gain market share and customer loyalty. Profit per unit is low, and customers may leave when the price rises.
5
What is competitive pricing?
Model answer
Competitive pricing is setting a price similar to rivals' prices for the same kind of product. Petrol stations usually price close to nearby competitors.
6
What is a loss leader?
Model answer
A loss leader is a product sold at or below cost to attract customers. The business hopes customers will buy other, full-price products at the same time.

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Business in the Real World

Influences on Business

Business Operations

Human Resources

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