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Pricing Policies, Quality and Adding Value


BTEC Business

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Firms can find analysis of their products demand curves useful as it helps them: Work out how changing their prices will affect their revenue Assess how consumers will react to changes in price
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Business Use of Demand Curves

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Price and Demand


In general, the higher the price charged for a good or service, the lower the quantity that will be demanded of that product This relationship is not necessarily simple Lets look at an example
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Demand Analysis
Price 50 100 150 200 Quantity Total Demanded Revenue 1000 50000 800 400 300 80000 60000 60000

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Demand Analysis
At 100 per unit, the firm earns 80000 revenue If price rises to 150 per unit, revenue falls to 60000 This helps the firm find its revenue maximising price
Price 50 100 150 200 Quantity Demanded 1000 800 400 300 Total Revenue 50000 80000 60000 60000

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Demand Analysis
At any price below 100 per unit, the firm earns more by raising its price At prices over 100 per unit, the firms revenue falls The revenue maximising price is at around 100 per unit
Price 50 100 150 200 Quantity Demanded 1000 800 400 300 Total Revenue 50000 80000 60000 60000

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Pricing Policies
If a firm has the power in its market to set its own price, it can adopt a pricing policy: Market penetration pricing Destroyer pricing Follow-the-leader pricing Skimming
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Pricing Policies
Find out more about these policies in your research time.
Premium pricing means charging higher prices to certain segments of their market.

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Adding Value
This is where raw materials or component parts are processed to boost their value when they are sold on.

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Advertising
Firms pricing policies can be made to work better through the use of advertising. Advertising is included under Promotion as part of the Marketing Mix. Its aim is either to inform consumers or to persuade them to buy a particular product or range of products.
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Advertising
In oligopoly markets, advertising is often used to differentiate one firms products from those of its competitors Firms adopting a market skimming policy use advertising to persuade consumers to demand their premium product
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