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Study Notes

Price - Introduction

AQA, Edexcel, OCR, IB

Last updated 22 Mar 2021

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.

For example, unlike the other elements of the marketing mix (product, place & promotion), pricing decisions affect revenues rather than costs. Pricing also has an important role as a competitive weapon to help a business exploit market opportunities.

Pricing also has to be consistent with the other elements of the marketing mix, since it contributes to the perception of a product or service by customers.

Setting a price that is too high or too low will - at best - limit the business growth. At worst, it could cause serious problems for sales and cash flow.

So pricing is important. The bad news for entrepreneurs is that pricing is a really tough to get right. There are so many factors to consider, and much uncertainty about whether a price change will have the desired effect.

The law of demand states that, for nearly all products, the higher the price the lower the demand. In other words, sales will fall if prices are put up. However higher prices can also mean higher profits.

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