Taking Demand-based Pricing To Extremes
Mansfied FC played their home match in front of a larger crowd than usual on Saturday. The reason? Well, the owners decided to use an extreme method of demand-based pricing.
They scrapped the usual £16 admission charge, and allowed fans to “pay what they wanted”. The result was an increase in their usual attendance of around 3,000 people, to a crowd of 7,261. Although some fans paid as little as 3p, others paid as much as £50!
Video case study - substitute goods benefiting from the recession
A cracking little video from BBC Look North featured some typically gritty Northern characters, some low-priced rabbits and a chimney sweep - the perfect combination for a business studies resource. The video is particularly useful as a way of illustrating how the recession encouraged consumers to switch their demand to substitute goods that offered better value for money. Personally, I prefer stewing steak to rabbit anyday, but I’m a convert to the idea of repairing products rather than simply disposing of them and buying new…
Download student worksheet (pdf) and video link
What business students can learn from how businesses have handled the recession
The actions taken by successful businesses during the UK recession provide a rich source of guidance for students wishing to improve their analysis and evaluation skills.
read more...»Product, pricing and profitability in a changing market
In an article in the Business Section of the Sunday Times, Rachel Bridge looked at the vital importance of getting the marketing mix right for businesses struggling to survive the downturn in demand during the recession. The focus is on product, pricing and profitability in the changing market place. One point, that tends to get forgotten in market research, is the value of talking to those who are not currently customers as well as those who are. There are some excellent examples in the article, from a jeweller who introduced a new, cheaper range in order to allow customers attracted into her shop to find something affordable rather than leave empty-handed, to a couple running a pet and house minding business which has launched a “business in a box” to enable people to set up on their own just like they had. For a one-off fee of £6,995 plus VAT they supply a manual, a website, two days of training and the right to set up a similar business in a specified region.
The article concludes with some key lessons for reviewing the marketing mix:
- Consider introducing a cheaper range to appeal to more cost-conscious customers but make sure it does not damage the image of your business.
- Be wary of marking down prices of existing products to attract customers. Once lowered, prices are very difficult to put back up.
- Don’t continue to sell products or services purely for sentimental reasons. If they are not in demand, or they don’t make a profit, ditch them.
- Get a clean sheet of paper and write down the ideal product range for the market you are serving. Then work out how to adjust your range to mirror this.
- Don’t make decisions in isolation — ask your customers what they think of your product range and what they would like to see more of.
- Work out the profitability of your products. It may no longer be enough to justify stocking them.
- Review the way you sell your products and services. Can they be ordered or delivered online? Is selling them wholesale still the best way, for example, or should you be trying to build a brand of your own?
Revision Presentation - Marketing Mix: Introduction to Pricing
Setting the optimal price is one of the hardest parts of marketing - and the only element of the marketing mix which directly affects revenues. This revision presentation examines the main methods, tactics and strategies of pricing + introduces the important topic of price elasticity of demand.
View revision presentation on Marketing Mix - Introduction to Pricing
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Revision Presentation - Revenues and Demand
In this revision presentation we look at the concept of revenue (sales) and customer demand. We look at the key factors affecting demand and provide some illustrations of how revenue is measured and calculated.
View revision presentation on revenues and demand
Q&A - When is it appropriate for a firm to use penetration pricing?
You often see the tagline “special introductory offer” – the classic sign of penetration pricing. The aim of penetration pricing is usually to increase market share of a product, providing the opportunity to increase price once this objective has been achieved.
read more...»Q&A - Explain price skimming
Price skimming is a pricing strategy that involves setting a high price before other competitors come into the market.
read more...»Q&A - What is the difference between pricing strategies & tactics?
Pricing is a very powerful weapon in marketing, but there are many different ways to use it to help achieve marketing objectives. It is important to make a distinction between pricing strategies and pricing tactics.
read more...»Q&A - Explain what is meant by price positioning
How much would you pay for a portion of fish & chips? In the UK, the average price is around £3.30. However, you can find fish & chips sold for much less than that in some parts of the country, and for significantly more in an upmarket restaurant. So what accounts for the variation in price – and what signals does price provide to a potential customer? The answer lies in price positioning.
read more...»Q&A - What factors should a business consider when setting its prices?
There are several factors a business needs to consider in setting the price:
read more...»Q&A - How does pricing link to the objectives of a business?
The price a business charges needs to take account of, and be consistent with the strategic objectives of the business.
read more...»Q&A - What is price and why is it so important in the marketing mix?
Price is:
• The money charged for a product or service
• Everything that a customer has to give up in order to acquire a product or service
• Usually expressed in terms of £
The price a business charges for its product or service is one of the most important business decisions management make.
read more...»A tale of two bakers
Tom White’s excellent piece on the rapid growth and success of Greggs could be used to compare and contrast with a piece of bad news for those of us here in Yorkshire used to getting our lunchtime nibbles from Ainsley’s…
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Emerging markets drive demand for oil
A neat graphic on The Economist website this week helps illustrate the rapid economic growth of emerging markets such as India & China. It breaks down the historical demand for oil from the key economies, highlighting the changes between 1980 and the latest forecasts for 2030 by the International Energy Agency. The oil market is a good example to use when illustrating the dynamics of changing supply and demand on market prices. And there is a good discussion to have with students about why an emerging economy such as China, Malaysia or India would experience such a significant increase in demand for oil (rapid industrialisation; wider car ownership etc)
Cash flow Clue-doh! The Mystery is Revealed…
Over 1,500 colleagues have now downloaded our cash-flow murder mystery activity - Cash Flow Clue-doh! And we’re getting an increasing number of enquiries asking what the solution is!
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Santa goes back to basics in attempt to reduce the cost of Christmas
A big hat tip to Sam Lavery on the EconomicsTeacher Twitter Group for spotting a useful topical piece in the Telegraph. The Toy Industry Association’s annual list of the top Christmas sellers (based on what they know toy shops to have ordered from suppliers) shows the average price of the toys in the basket has almost halved for Chirstmas 2009. Electronic gizmos are out (along with their high selling prices); traditional favourites are back in. However, there is still plenty of evidence of innovation - particularly amongst long-standing brands like Monopoly and Lego.
Q&A - How are businesses affected by unemployment?
Businesses are affected in a variety of ways depending on whether unemployment is high or low, and rising or falling.
read more...»Pricing strategies and tactics under investigation
The Office of Fair Trading (OFT) is to undertake a detailed investigation into methods of advertising and pricing goods and services online. This should prove to be a really interesting report when it is published in the summer of 2010, making it essential reading for anyone wanting to understand the variety of advertising pricing tactics and strategies being developed online.
read more...»Dyson launches a new premium product
James Dyson is at it again - launching a desktop fan at a price that is almost ten times the average price of a standard blade-based fan…
read more...»Ukraine 1 England 0 - A match to remember?
Whilst it might not have been the result we wanted, England’s match against the Ukraine on Saturday may become memorable for business reasons.
Whatever your view on whether England football matches should only be available to watch live on the internet, there is little doubt that there is plenty of scope for the topic to be used constructively in the business studies classroom.
Topics could include…
read more...»Napster - Trying to compete, or getting desperate?
It was the music download site that first caused major headaches for record company bosses when it was first launched as an illegal download site. Ten years on, Napster is now a legitimate music site (and has been since 2002), but is facing a battle of it’s own.
V-Water - from start up to exit
The market space for enhanced water is getting crowded! Sales of ‘smoothies’ are down by more than fifty per cent this year but the volume of enhanced water bottles being bought is proving more resilient to the recession. And the growing amount of shelf space in the supermarket aisles given over to the likes of Firefly, Vitamin-Water, Just-Juice, Vitsmart and V-Water is testimony to the high margins these products generate. Chris Coleridge, co-Founder of V-Water gave a relaxed, entertaining and thoughtful presentation on the growth of his business to the Eton College Entrepreneurship Society on Thursday night. A large audience - fortified by a generous sample of the six flavoured drinks on offer - grilled Mr Coleridge on his business after he had taken time out to explode five myths about start-ups.
read more...»The lights go out for the nightclub market
Its bad news for shareholders of Luminar - but this news story is packed with rich potential for a business studies lesson…
read more...»Sony cuts the PS3 price to extend its life cycle
When Sony launched the original PlayStation 3, they intended the product to have a ten-year life cycle. The latest version of the PS3 has just been launched worldwide: a lighter and more powerful machine and, perhaps more importantly, it comes with a chunky price cut. This video briefly examines the business strategy behind the latest extension activity for the PS3.
More trouble in the skies
The ongoing turmoil in the airline industry continues, with the Irish national airline Aer Lingus announcing worse losses in this BBC news article
read more...»Sainsbury’s and Diageo pitch in to battle
Summer isn’t over yet – still plenty of time to enjoy a few glasses of Pimm’s with friends – or is that a few glasses of Pitchers? Diageo, the giant company that owns Guinness, Smirnoff Vodka and Johnnie Walker whisky as well as Pimm’s (and many, many other brands) is threatening to use copyright legislation to take Sainsbury’s to court, alleging that the supermarket’s own brand ‘Pitchers’ is a copy of Pimm’s. Pitchers is a gin-based summer drink which can be mixed with fruit and lemonade. Does this sound familiar? A little like the way you might mix a Pimm’s, perhaps?
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Own label brands profit from the recession
As the price of the average grocery shop rises, supermarket own-brands are becoming more popular with shoppers. A neat little video clip from the BBC explains further.
Demand and supply in action - tea prices surge
The new Edexcel GCSE Business Unit 1 specification encourages students to look at commodity markets to develop their understanding of how demand supply interact to determine market prices.
Here is an excellent example of how two significant shifts in the demand and supply curves can affect the global price of a commodity. Failing crops and surging demand for tea is pushing prices higher.
As a leading exporter of tea, Keyna is benefitting from the surge in prices, after suffering from higher production costs in recent years.
The Death of Newspapers - to be replaced by Nichepapers?
There is a perfect storm brewing in the newspaper industry around the globe. Dramatic falls in advertising revenues coupled with a rapid migration of readership from paid-for newsprint to free-to-read digital is destroying the business model of many regional and national newspapers. Here is a thought-provoking piece which considered what the successful newspaper of the future is likely to be. I like the concept of a nichepaper - where readers are prepared to pay for the value added from specialist and passionate journalists and other writers.
Instore Takes a Pounding
Knowing what your customers want is key to the success of any business. This is particularly true for so called “pound” shops; their customers are focused on value and price.
The importance of this is perhaps reinforced by the tale of two retailers who operate within the value market. Poundland has gone from strength to strength, as shown in earlier blog articles, and is set to open at least 30 new stores over the next 12 months.
InStore, on the other hand decided that their customers should move upmarket - and replaced the familiar £-stretcher fascia with the less familiar InStore fascia.
U2 on Tour - Investment appraisal and capacity utilisation rolled into one!
A fantastic example of investment appraisal and capacity utilisation in this article in the Guardian, which describes the risks and returns of the new U2 tour.
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Swimsuit malfunction - a failure of quality or just the wrong size?
Taking advantage of the sweltering temperatures outside whilst I write this, here is a mini case study in quality control…
read more...»Q&A - Outline the main costs and benefits of inflation
Inflation has many important costs and consequences for both society and business. However a stable and low level of inflation also provides some upsides for business.
read more...»Q&A - Explain the causes of inflation
There are two main causes of inflation:
• Demand-pull (when there is excess demand), and
• Cost-push (when costs rise)
Q&A - What is inflation and how is it measured?
Inflation is a sustained increase in the average price level of a country. The rate of inflation is measured by the annual percentage change in the level of prices.
read more...»East Coast Rail Line is Nationalised
The government is taking the East Coast rail line that runs from London to Edinburgh and which has been operated by National Express into public ownership. National Express has struggled with falling revenues and higher costs that have contributed to rising losses on the line. In a press release, National Express said that higher hedged fuel costs added £11 million of cost in the first half of 2009, while increased pension costs cost the business a further £3 million.
read more...»Recession Bites - new food shopping habits
Tonight’s edition of the Money Programme looks worth watching, or recording – on at 22.00 on BBC2 (unless Wimbledon overruns by two and a half hours again, presumably!).
‘Recession bites into our eating habits’ looks at the changes in supermarket and food spending over the last year, as food prices have risen by 8% and consumers seems to be cutting back on luxuries and shifting to inferior goods – a good illustration of income elasticity of demand, and the effects of falling consumer confidence.
read more...»Budget Hotel Chain Now Feeling the Squeeze
There are some excellent examples of businesses that are significantly exposed to a downturn in demand from business travellers - British Airways is perhaps the best. However, you can now add Whitbread to that list…
read more...»Milk co-operative turns sour
A rare example of a form of business organisation that used to feature regularly in business textbooks has entered insolvency…
read more...»How to improve a profit margin through a hidden price increase - the Snickers way
Now this is sneeky! The retail price of Mars and Snickers bars has stayed the same. But the weight of the bars has been reduced!
read more...»Video case study - football shirt sponsorship under pressure
A cracking good video report on the challenges faced by football clubs who look to generate revenue from allowing firms to sponsor their shirts…
read more...»BA posts a record loss
Truly awful trading figures from British Airways today, illustrating the severe competitive issues facing the airline industry…
read more...»Video case study - the effect of deflation on businesses
The latest data on inflation, as measured by the Retail Prices Index (RPI), sbows that prices are falling. What are the effects on the turnover of retailers? What is the impact on workers? A great video from the BBC provides ideal stimulus material for looking at this topic.
read more...»Motivating employees - the end of the mobile phone sales shark?
A great example to use when discussing the importance of financial incentives as a way of motivating employees to maximise revenues. The Carphone Warehouse has decided to abandon the use of sales-related commissions for its store staff…
read more...»AQA AS Business Unit 1 - Possible Evaluation Questions
The following list is not intended as an exhaustive list of all the possible evaluative questions that might be set on BUSS1 – merely an indication of the key specification areas which lend themselves to longer, evaluative questions.
read more...»A booming rental market – for car parking spaces
It’s enterprising, practical and meeting a need for both buyers and sellers: increasing numbers of homeowners are renting out their driveways and garages to commuters who are fed up with overpriced and crowded car parks. There’s an interesting article and video clip about firms springing up to link frustrated drivers with parking landlords.
read more...»Q&A - What is the link between product differentiation and a USP?
An important part of the marketing of the product is through product differentiation. This means making the product different from its competitors. Product differentiation can be achieved through…
read more...»Q&A - How do changes in commodity prices affect businesses?
A change in commodity prices has too main possible effects on a business:
(1) An effect on sales revenue
(2) A change in raw material and other operating costs
Q&A - What are commodities and how are their prices determined?
A commodity is a product for which there is demand and which is supplied without any clear difference in product quality or standard.
An important feature of a commodity is that its price is determined as a function of its market as a whole – by the interaction of market demand and market supply.
read more...»
