EDEXCEL GCSE BUSINESS · PAPER 2
Exam Practice: Price
Price · Making marketing decisions · Lesson 2 of 5 · 15 marks · 20 minutes
Name Date
Answer all questions. Show your working in calculations.
Question 1 DEFINE [1 mark]
Define the term 'penetration pricing'.
Question 2 CALCULATE [2 marks]
A business makes garden benches for £60 each and uses cost-plus pricing with a 35% mark-up. Calculate the selling price of a bench. You are advised to show your working.
Question 3 EXPLAIN [3 marks]
Explain one disadvantage of price skimming for a business launching a new product.
Question 4 JUSTIFY [9 marks]
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SOURCE SnapFit Ltd has developed a new fitness tracker watch. It has a unique feature: it measures hydration levels, which no competitor can do. The market for fitness trackers is large and competitive, dominated by well-known brands. SnapFit is a new and unknown brand. Option 1: Use price skimming, launching at £249. Option 2: Use penetration pricing, launching at £99. |
Justify which one of these two options SnapFit Ltd should choose.
Answers
Check your answer only once you have written one.
Question 1 [1 mark]
Setting a low price when a product is launched to attract customers and gain market share quickly.
▸ Low launch price / to gain market share 1 mark
Question 2 [2 marks]
£60 × 0.35 = £21. £60 + £21 = £81
▸ Correct method: cost + (cost × 35%) 1 mark
▸ Correct answer: £81 1 mark (award 2 marks for the correct answer with no working)
Question 3 [3 marks]
Sales may be low at first (1). Only early adopters are willing to pay the high launch price (1). This means the business may take longer to build market share, and the high profits may encourage competitors to launch cheaper rivals (1).
▸ A disadvantage identified, e.g. low sales / attracts competitors / needs strong brand 1 mark
▸ First linked point of explanation 1 mark
▸ Second linked point of explanation 1 mark
Question 4 [9 marks]
Option 1, skimming, suits a product with a unique feature: SnapFit's hydration sensor gives early adopters a reason to pay £249, and the high profit per sale would help recover its development costs. However, SnapFit is an unknown brand in a market dominated by famous names, and customers may not trust a new brand at a premium price, so sales could be very low. Option 2, penetration, would encourage customers to try an unknown brand, quickly building sales and market share and making SnapFit well known. But £99 gives a much lower profit per watch, and it may be hard to raise the price later. On balance SnapFit should choose Option 2, because as an unknown brand its biggest challenge is persuading customers to try it at all, and a low price combined with its unique feature gives them a strong reason to switch. This depends on whether £99 still covers its costs.
▸ AO2 (Application, 3 marks): uses the context - the hydration feature, unknown brand, competitive market, £249 and £99 Level 1-3
▸ AO3a (Analysis, 3 marks): chains of reasoning about each strategy Level 1-3
▸ AO3b (Evaluation, 3 marks): a justified choice with a supported judgement Level 1-3