1. TOPIC:Topic 4: Marketing LESSON TITLE:Price Elasticity LEARNING 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 Criteria By the end of the lesson, I can… 1) To recall the formulae for calculating price elasticity of demand 2) To apply the formulae for calculating PED to a given situation 3) 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

2. 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.

3. The Marketing Mix [www.bbc.co.uk]

4. PRICE Pricing 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 )

5. Economic Environment The Business Cycle Increase in consumer spending Inc in house prices Low unemployment Inc in GDP Reduced unemployment Increased business growth High unemployment Low demand for products Low consumer spending Low business growth

6. 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.

7. 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

8. 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.

9. 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

10. 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)

11. Price Elasticity of Demand (PED)

12. TASK Complete activity 27.5, p.g 289

13. Income Elasticity of Demand (YED) YED: measures the responsiveness of demand following changes in consumer’s income. YED = % change in demand % change in income

14. 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

15. 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

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

17. TASK: CASE STUDY Activity 27.7, p.g. 290