CHAPTER # 13: MARKETING MIX: PRICE

Q1: Define the following:

a) Price Elastic Demand:

It is where consumers are very sensitive to changes in price.
b) Price inelastic Demand:
It is where consumers are not very sensitive to charges in price.
Q2: What are the factors considered before pricing a product?
Factors considered before pricing a product are:
i. Competitors: It will have a huge impact on pricing decisions business set in line.
ii. Costs: A business must be able to cover development and other cost and make a reasonable profit
through price in the long run.
iii. Demand: If there is high demand for the product and a supply shortage, then a business can fix price.
iv. Stage of PLC: Particularly, the stage at which a product operates, accordingly pricing method is fixed.
E.g., Introduction stage price skimming/penetration pricing is used.
Q3: Do you think that if Gayle’s Soap decides to increase prices then this will lead to higher profits? Justify
your answer.
If Gayle’s soap decides to increase prices, there is a possibility that will lead to higher profit margins. If the
soap was of high quality and the target customers have higher income then increasing the price would attract
them and make them think that the soap is of higher quality and increase profits. Furthermore, if Gayle’s soap
maintains brand loyalty this may mean more people will be willing to buy and pay higher prices. At this point,
Gayle’s soap can benefit from a higher price.

Q4: David thinks it would be a good idea to charge a lower price than his competitors. Explain this might not
be a good idea.

Charging a price lower than its competitor may not be a good idea as David may not focus on capturing more
market share due to which he may not be able to cover its development and production costs. As a result, he
will fail to achieve its profit margins and also customers would perceive that the product is of low quality.

Q5: State and explain any two pricing strategies.

a) Price Skimming:
This is where the product is launched at a premium price. It is common with products which are new
inventions and people are willing to pay a premium price because of the novelty factors. It is quite common
with Mobile phones and other technological products.

b) Penetration Price:
It involves setting the price lower than the competitors’ prices. This strategy is usually followed where there is
a lot of competition and the product launched may not be unique.
 CHAPTER # 14: MARKETING MIX: PLACE
Q1: Suggest two advantages to a company of its selling directly to its consumers.
 It is an effective way to get the attraction of customers as it would be easy for a producer to fulfill the
demands of their prospective customers directly.
 A loyal customer would have ease of access to all the possible solutions which may help him in
understanding the technicalities of that particular product.
Q2: Explain the factors a manufacturer should consider in deciding on the best channel of distribution for its
products.
 Technical factor: If the product carries technical information, then it must be sold directly.
 Perishable Product: If the product goes rotten quickly, then it will need to be available widely.
 Location of Customer: If the customers are located in other countries channel 4 must be used.
 Expensive Product: If the product is expensive or of high quality it must be sold only in the limited number
of outlets.
Q3: How important do you think channels of distribution are for increasing sales of their products.

Channel of distribution is the means by which a product passes from the producer to the customer. As Playwell
deals with a wide range of games it is necessary for him to choose an appropriate channel of distribution such
as channel # 2. COD is of great importance as through this channel products will be available at different places
where customers can buy it easily and thus this can increase the company’s sales.
Q4 and Q5 are not required.
Q6a: Identify two elements of the marketing mix.

Place and Promotion

Q6b: What is meant by the target market?

It represents the group of consumers that the product is specifically aimed at.
Q6c: Identify and explain two advantages to a retailer of buying products from a wholesaler.

1. Immediately available: Customer may have a product direct from a retailer who can provide him with the
better services which can increase sales.
2. Storage cost: When retailers buy from wholesalers, they buy in a small quantity thereby reducing the
storage cost.
Q6c: Would you recommend that they make this change? Justify your answer.

Electrux plan of selling directly to customers can have major implications it can reduce costs as there will be no
middlemen like wholesalers or retailers. Businesses can be more competitive and can increase its sales and
profits. Thus, it is highly recommended that Electrux can change its channel of distribution.
 CHAPTER # 15: MARKETING MIX: PROMOTION
Q1: Define the following:

a) Advertising:
Paid for communication with potential customers about a product to encourage them to buy it.
b) Advertising Budget:
The amount you plan to spend on paid promotion of your brand and/or products over a set time period, such
as a year or a quarter.
Q2: Businesses use many methods to promote their products. State and explain methods of promotions that
could be used by a fashion clothing manufacturer.
Discount Coupons:
Distribute the discount coupons after sales of every heavy dress so that customers may find it attractive and try
to buy more clothes in their next purchase. E.g., 10% discount on the next purchase.
Gifts:
Customers prefer to have gifts as a complement that highlights their worth. A small gift can be given to the
customers which may help them in building a positive association with the brand.
Competition:
Customers prefer to have gifts as a complement that highlights their worth. A small gift can be given to the
customers which may help them in building positive association with the brand.