Syllabus: Pearson Edexcel GCSE Business
Module: Making Marketing Decisions
Lesson: 2.2.2 Price

Introduction

Price is often the make-or-break factor in a customer’s decision to buy. This topic explores how businesses determine what to charge for their products and services – balancing what customers will pay against what the business needs to earn. It’s the most flexible element of the marketing mix, capable of being changed quickly to respond to market conditions. Understanding pricing helps students see beyond the price tags they encounter daily to the strategic thinking behind them. Whether it’s Apple’s premium pricing or Aldi’s budget approach, price communicates value, positions brands, and ultimately determines whether businesses succeed or fail.

Key Concepts

According to the Pearson Edexcel GCSE Business syllabus, the key concepts under Price include:

• Price and Factors Influencing Price:

  • The relationship between price and revenue: How changes in price affect total revenue
  • The relationship between price and profit: How price affects contribution per unit and overall profitability
  • Factors influencing pricing decisions: Costs, competition, customer perception, product quality, and brand image
  • The importance of price in the marketing mix: How price interacts with product, place, and promotion

• Pricing Strategies:

  • Cost-plus pricing: Adding a percentage markup to the unit cost to ensure profitability
  • Price skimming: Setting a high initial price for a new product and gradually reducing it over time
  • Penetration pricing: Setting a low initial price to gain market share and increase customer awareness
  • Competitive pricing: Setting prices based on what competitors charge for similar products
  • Promotional pricing: Temporarily reducing prices to boost sales as part of a marketing campaign

• Technology, Competition, and Market Segments:

  • The influence of technology on pricing: Online price comparison, dynamic pricing, and digital marketplaces
  • How competition affects pricing decisions: Price wars, market positioning, and differentiation
  • Pricing for different market segments: Premium pricing, economy pricing, and psychological pricing techniques

These concepts help students understand how businesses make strategic pricing decisions to maximize revenue, maintain competitiveness, and communicate value to customers.

Real-World Relevance

Pricing decisions shape the purchasing choices students make every day:

• Cost-Plus Pricing in Action:

  • When students buy from independent shops or market stalls, they’re often seeing cost-plus pricing – the seller has simply added a standard markup (maybe 50%) to what they paid for the item.
  • Local tradespeople typically use cost-plus pricing when quoting for jobs – calculating materials and labor before adding a percentage for profit.
  • Those handmade items on Etsy use cost-plus pricing too – creators calculate materials and time before adding a markup for their creative work.

• Price Skimming Students Have Experienced:

  • Every time Apple launches a new iPhone at £1,000+, they’re using price skimming – charging what early adopters will pay before gradually reducing prices as newer models arrive.
  • The PlayStation 5 launched at a price that only the most dedicated gamers would pay, before becoming more affordable over time – a classic skimming approach.
  • When Dyson releases an innovative new product, the initial high price reflects both their development costs and their knowledge that some customers will pay a premium to have the latest technology first.

• Penetration Pricing That Affects Students:

  • Disney+ launched with deliberately low subscription prices to build their subscriber base quickly before gradually increasing prices – many students likely experienced this firsthand.
  • Aldi and Lidl transformed UK grocery shopping with penetration pricing – setting prices below established supermarkets to attract price-sensitive shoppers.
  • Uber’s initial low prices compared to traditional taxis helped them quickly establish a customer base – a penetration strategy many students have benefited from.

• Competitive and Promotional Pricing Students Notice:

  • The identical price of a pint of milk across supermarkets isn’t coincidence – it’s competitive pricing where retailers match each other on key value items.
  • Those “50% off” signs in shop windows during January sales represent promotional pricing – temporarily reducing prices to clear inventory.
  • The constantly changing prices of airline tickets demonstrate dynamic competitive pricing – adjusting based on competitor prices, demand levels, and time until departure.

These examples connect pricing theory to decisions that affect students’ everyday purchasing choices.

How It’s Assessed

In exams, students will typically encounter:

• Multiple-choice questions: Testing basic knowledge of pricing strategies and influencing factors.

• Short-answer questions: Explaining specific pricing strategies and their appropriateness in different contexts.

• Case study questions: Identifying pricing issues in business scenarios, explaining appropriate strategies, and analyzing potential outcomes.

• Extended response questions: Discussing different pricing strategies for specific business contexts, weighing advantages and disadvantages.

Students need to know specific pricing concepts, understand their business impact, and evaluate different pricing strategies. Command words to watch for include “identify,” “explain,” “analyze,” and “evaluate,” with higher marks for balanced arguments that consider both advantages and disadvantages of different approaches.

Enterprise Skills Integration

Understanding pricing builds practical skills students can use beyond exams:

• Numerical reasoning: Calculating costs, margins, and potential revenues develops the ability to work with financial data and make informed decisions – essential in any business role.

• Critical thinking: Evaluating the effectiveness of different pricing strategies in various market conditions develops analytical skills applicable in many contexts.

• Problem-solving: Examining how businesses respond to pricing challenges enhances the capability to identify solutions to complex problems.

• Commercial awareness: Understanding how pricing affects consumer behavior and business performance fosters appreciation for market dynamics.

• Decision-making: Weighing up factors that influence pricing decisions develops the ability to make reasoned judgments with competing priorities.

These skills transfer well beyond business studies to any situation requiring financial analysis and strategic decision-making.

Careers Links

Knowledge of pricing connects to numerous career paths:

• Pricing Analysis: Pricing Analysts, Revenue Managers, and Yield Specialists optimize pricing to maximize revenue and profitability.

• Marketing: Product Marketing Managers, Brand Managers, and Marketing Strategists develop pricing approaches that align with overall marketing objectives.

• Finance: Financial Analysts, Management Accountants, and Commercial Finance Managers assess the financial implications of pricing decisions.

• Retail: Retail Buyers, Category Managers, and Merchandisers make pricing decisions based on market positioning and competitor analysis.

• E-commerce: E-commerce Managers, Digital Marketing Specialists, and Online Retail Analysts implement dynamic pricing strategies in digital marketplaces.

Understanding pricing isn’t just for future finance professionals – it’s relevant to anyone who might need to determine the value of products, services, or even their own skills in the workplace.

Teaching Notes

• Start with products students regularly purchase – perhaps comparing prices of similar items from different brands. Why does one chocolate bar cost twice as much as another? This makes abstract concepts immediately relevant.

• Use real-world examples that highlight different strategies – perhaps comparing the pricing approaches of Apple (premium) versus Android manufacturers (various strategies).

• Try interactive activities where students set prices for hypothetical products based on different scenarios. What price would they set for a new energy drink targeting teenagers? How would they respond if a competitor slashed their prices?

• Create comparison exercises examining both successful and unsuccessful pricing decisions. Why did Netflix’s price increases stick while other subscription services failed?

• Watch for the misconception that lower prices always lead to higher sales (ignoring price-quality associations), or that prices should always maximize short-term profit (ignoring long-term positioning).

• For extension, have students analyze how comparison websites have affected pricing strategies, or research how businesses use psychological pricing techniques (£9.99 versus £10.00) to influence consumer behavior.