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Question Answer Marks AO Element Notes Guidance

1 Do you think competitive pricing 6 This is a general question

is the best method for an so there are no marks for
established business to use? application.
Justify your answer.
Candidates can discuss
Award up to 2 marks for other methods of pricing,
identification of relevant points. but evaluation must focus
on whether competitive
Award up to 2 marks for relevant
pricing is the best method
development of points.
to use.
Award up to 2 marks for a justified
Some points could be
decision as to whether competitive
awarded as [k]or [an] but
pricing is the best method for an
do not award the same
established business to use.
point twice.
Points might include:
Do not award price
• Price will not discourage skimming or penetration
customers from buying [k] so pricing on own unless
maintain customer loyalty [an] explained.

• Prevents business losing

market share [k] which could
result in less revenue[an]
• Customer may be prepared to
pay more (if it is a popular
brand) [k]
• Need another way to attract
customers [k] which could
increase costs [an]
• May not cover the costs [k] so
may find it difficult to break
even [an]
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Question Answer Marks AO Element Notes Guidance

• Takes time/money to find out

competitors prices [k]
Other methods can be discussed
such as:
Cost-plus pricing [k]
• Know that the costs will be
covered [an]
• Know their profit margin / can
make a profit per item [an]
• Easy to calculate/apply [an]

• Does not consider what

competitors do / prices may
be higher than competitors[an]

• Does not take account of

changes in demand/spending
patterns [an] so could lead to
fewer sales being made [an]

• Little incentive to control

costs [an]
Promotional pricing [k]
• Help attract sales [an]
• Helps to renew interest in a
product if sales are falling [an]

Other appropriate responses should

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Question Answer Marks AO Element Notes Guidance

also be credited.
Justification might include:
Competitive pricing will not
discourage customers from buying
[k] so will buy again [an]. However,
if you base your prices solely on
competitors, you might not be able
to cover costs [k] which makes it
difficult for a business to
break-even [an]. No, as it depends
on what they sell while cannot
ignore what other businesses charge
especially if its a competitive
market but if the business has a
good reputation which an
established business might have
[eval] it may be able to use other
pricing methods that allow it to
charge more [eval].
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Question Answer Marks AO Element Notes Guidance

2 Define ‘marketing budget’ . 2

Award 2 marks for a full
definition.
Award 1 mark for a partial
definition.
A financial plan for the marketing
of a product or product range (for
a specified period of time) [2]
OR
The amount of money made
available by a business for its
marketing activities during a
particular period of time [2]
Partial definition e.g. money to be
spent on marketing [1]
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Question Answer Marks AO Element Notes Guidance

3 Do you think penetration pricing 6 This is a general question

is a better method for a new so there are no marks for
business to use than cost-plus application.
pricing? Justify your answer.
To gain both evaluation
Award up to 2 marks for marks, response must
identification of relevant points. clearly relate to a new
business.
Award up to 2 marks for relevant
development of points.
Award 2 marks for a justified
decision as to whether it is always
better for a new business to use
penetration pricing rather than
cost-plus pricing.
Answers might include:
Penetration pricing
• Setting a lower price than
competitors should attract
customers [k] leading to higher
number of sales [an] • Help build
up market share quickly / enter new
market quickly [k] • Customers may
get used to low prices and may not
buy if prices increase [k] leading to
fewer sales / damage reputation [an]
• Might not be appropriate for a
product which is being promoted
as having high quality [k] which
can damage image/reputation [an]

Cost-plus pricing
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Question Answer Marks AO Element Notes Guidance

• Easy to apply [k] which could

allow time for new business to
focus on other issues [an] • Ensure
costs are covered [k] so will make
a profit per item [an] • Price may
be (much) higher than competitors
[k] making the business
uncompetitive / leading to fewer
sales [an] less revenue [an] •
Little/no incentive to reduce costs
[k] Other appropriate responses
should also be credited.
Justification might include:
Setting a lower price than
competitors using penetration
pricing should attract customers [k]
leading to more sales [an].
Cost-plus pricing could mean the
price may be higher than
competitors [k] could make the
business uncompetitive [an].
Therefore, penetration pricing is
better because a new business needs
to gain customers - and by setting
such a low price, more people
might be able to afford it,
improving the chances of the new
business being successful. [eval]
[eval]
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Question Answer Marks AO Element Notes Guidance

4 Define ‘cost-plus pricing’. 2 First mark is for

explaining what the
Award 2 marks for a full definition.
‘plus’ is e.g. profit.
Award 1 mark for a partial
Second for reference to /
definition.
description of mark-up.
The price is based on the cost of
making a product and the addition
Price is based on / related
of a fixed percentage for profit [2]
to cost of product [0]
(reordering only).
OR The cost of manufacturing the
product plus a (profit) mark-up [2]

OR Formula e.g. [total cost / total

number of units] + % mark up [2]

Partial definition e.g. profit added

to the cost [1]
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Question Answer Marks AO Element Notes Guidance

5 Explain two possible problems 6 Note: To use words from

for WYP of selling products at the stem as application,
low prices. the reference must be
appropriate (i.e. make
Award 1 mark for identification of
sense) in relation to the
each relevant problem (max 2).
point being made.
Award 1 mark for each relevant
The following words are
reference made to this business
likely to be appropriate
(max 2).
for this question:
Award 1 mark for each relevant
• (Eye) glasses/spectacles
explanation (max 2).
• $95 or $200 • Started 7
Points might include: years ago • Website • 3
friends • Customer
• Seen as cheap / seen as low loyalty • Trade credit •
quality [k] as $200 less [app] could Partnership
lead to fewer sales [an] • Cash flow
problems [k] as does not generate Other appropriate
as much revenue per unit [an] when examples in context can
selling eye glasses [app] • Low still be credited.
profit margin [k] so harder / need
Do not award $295 as
to sell more to break even [an] •
analysis as this does not
Can be difficult / less scope to use
show any explanation.
promotional pricing to encourage
sales [k]
Other appropriate responses should
also be credited.
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Question Answer Marks AO Element Notes Guidance

6 Identify two pricing methods. 2 Only award the first two

responses given.
Award one mark per pricing
Candidates must identify,
method (max 2).
and not simply describe,
Points might include: the pricing method.
• (Market / price) skimming
• Penetration (pricing)
• Cost-plus (pricing)
• Competitive (pricing)
• Promotional (pricing) Other
appropriate responses should also
be credited.
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Question Answer Marks AO Element Notes Guidance

7 Explain two factors Kara should 6

consider when deciding whether
to increase prices.
Award 1 mark for identification of
each relevant factor (max 2).
Award 1 mark for each relevant
reference made to this business
(max 2).
Award 1 mark for each relevant
explanation (max 2).
Points might include:
• Level of competition/selling price
of competitors [k] for candles [app]
as a higher price could mean fewer
customers [an] • Cost of production
[k] as a higher price should improve
her profit margin [an] especially as
she does not benefit from
economies of scale [app] • Price
elasticity of demand [k] as if price
elastic a higher price will result in
a greater fall in demand [an] so
revenue this year may not be $50
000 [app] • Brand image/reputation
[k] as higher price might suggest
better quality [an]
Other appropriate responses should
also be credited.
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Question Answer Marks AO Element Notes Guidance

8 State four factors a business 4 Only award the first four

should consider when deciding responses given.
the price of a product.
Award 1 mark per factor.
Points might include:
• Cost of production/examples of
costs e.g. cost of
materials/labour/transport (allow
only once)/breakeven/profit mark
up
• Level of demand or factors such
as recession/income/what people
are willing or able to afford/price
elasticity of demand
• Actions of competitors/level of
competition/price charged by
competitor/where or when the
product is sold/whether there are
any substitutes/whether it is a niche
or mass market/size of market
• Business objectives/profit
margin/add value
• Type of product/quality of
product/what is being sold/brand
image
• Availability of economies of scale

• Government or legal controls/tax

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Question Answer Marks AO Element Notes Guidance

• Stage in product life cycle/new

product
Other appropriate responses should
also be credited.
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Question Answer Marks AO Element Notes Guidance

9 Do you think BFF should increase 6 Application marks may

its prices? Justify your answer. be awarded for
appropriate use of the
following:
Knowledge [1] – award 1 mark for
identification of relevant point(s) • screens
• advances in technology
Application [1] - award 1 mark for
a relevant reference made to this
• increase in material
business
costs
Analysis [2] – award up to 2 marks
• computers
for relevant development of point(s)
• imports increased
Evaluation [2] – justified decision • need to remain
made as to whether BFF should competitive
increase its prices.
• manufacturers
Points might include:
• Could increase revenue [k] so
more money available to cover
costs [an] such as increase in
material costs [app]
• Could lead to fewer customers [k]
as higher price could encourage
customers to switch to competitors
[an] so difficult to remain
competitive [app]
• They need to increase prices to
cover cost [k] because of the
increase in material costs [app]
• Gives an impression of quality [k]
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Question Answer Marks AO Element Notes Guidance

• Keeping prices low may increase

market share [k] because it is a
competitive market [app] as lower
price attracts customers [an]
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Question Answer Marks AO Element Notes Guidance

10 Identify and explain two pricing 6 Application marks may

methods Y2M could use. be awarded for
appropriate use of the
Knowledge [2 × 1] – award 1 mark
following:
for each relevant method
• bus or related words
Application [2 × 1] – award 1 mark
e.g. tickets drivers,
for each relevant reference to this
passengers, trips, routes,
business
journey
Analysis [2 × 1] – award 1 mark for
• appropriate use of
each relevant explanation
numbers from the Table
Points might include:
• competitive pricing [k] charging • public sector
similar prices will retain existing
• private sector
[an] passengers [app]
• increased number of
• cost plus pricing [k] as Y2M aims
customers
to break even [app] so price must
cover costs [an] • competitors
• promotional pricing [k] lower • higher/ same wage
prices encourages more people to rate
use [an] its bus services [app]
• variable costs
• penetration [k]
• break even
• skimming [k]
Accept dynamic pricing
and psychological pricing
as these are appropriate
pricing methods for
transport
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Question Answer Marks AO Element Notes Guidance

11 Do you think GKA should change 6 Application marks may

its pricing strategy as the business be awarded for
expands? Justify your answer. appropriate use of the
following:
Award 1 mark for identification of
relevant point (s) • use of numbers such as
300 or 100 (shops) • food
Award 1 mark for a relevant
retailer • food / breakfast
reference made to this business
cereal • toothpaste • high
Award up to 2 marks for relevant income or low income
development of point(s) areas • limited range (of
products) • no promotion
Award up to 2 marks for a justified • quality products • low
decision made as to whether GKA prices • try to keep costs
should change its pricing strategy low • market share
as the business expands. increased 5% • profit
Relevant points might include: increased by 40%

• identification of a pricing strategy Note: question should

[k] • actions of competitors [k] • focus on whether
cost of new locations [k] in high business should change
income areas [app] may make it its pricing strategy not
hard to control costs [an] • just increase or decrease
diseconomies of scale [k] from price.
extra 100 shops [app] leading to a
rise in average costs [an] •
economies of scale[k] may allow
them to charge lower prices[an] •
current prices give the image of
poor quality [k] because they are
low prices [app] so may not attract
new customers [an] • they would
lose their USP if they change price
[k] leading to a loss of the current
customer base [an] in areas where
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Question Answer Marks AO Element Notes Guidance

average incomes are low [app]

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Question Answer Marks AO Element Notes Guidance

12 Identify and explain one 6 Application marks may

advantage and one disadvantage be awarded for
to BBT of using competitive appropriate use of the
pricing. following:
Knowledge [2 × 1] – award 1 mark • breakfast cereal
for each relevant advantage [max • ingredients or examples
1] or disadvantage identified [max such as wheat
1] • popular (brand)
Application [2 × 1] – award 1 mark • correct use of numbers
for relevant reference made to this such as number of years,
business change in revenue, 2016
Analysis [2 × 1] – award 1 mark for revenue
each relevant explanation • decline stage
• ethical
Relevant points might include:
• marketing strategy
Advantage:
• Price will not discourage
customers from buying [k] its
cereals [app] so will buy again [an]
• Prevents business losing market
share [k]
Disadvantage:
• Time OR money taken to find out
competitor’s prices [k] could
increase costs [an]
• Need another way to attract
customers [k] e.g. free gift could
increase costs [an]
• Customer may be prepared to pay
more [k] as it is a popular brand
[app] so could lose potential
revenue OR profit [an]
• May not cover the costs (of
production) [k] especially when
entering decline stage [app] so may
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Question Answer Marks AO Element Notes Guidance

not be able to break even [an]

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Question Answer Marks AO Element Notes Guidance

13 Identify and explain one 6 Application marks may

advantage and one disadvantage be awarded for
to Ella of using price skimming. appropriate use of the
following:
Knowledge [2 × 1] award one mark just left college, light,
for one advantage and one new business, new
disadvantage product, new
entrepreneur, produce in
Application [2 × 1] award one mark
another country, raising
for each relevant reference to this
finance difficult, correct
business
use of numbers, safety
Analysis [2 × 1] award one mark features
for each relevant explanation
Note: be wary of ‘higher
Points might include: sales’/ ‘higher revenue’
as a K point. It must be
Advantages: per unit
• Recover costs quicker [k] as need
to sell fewer than 300 [app] to pay
for development [an]
• Gives the image of a quality
product [k] which can attract
wealthy customers [an] to try out
the new light [app]
• Higher revenue per item[k]
• Break even at a lower output [k]

Disadvantages:
• Put off some potential customers
[k] leading to lower sales [an]
• Only work in short term [k] as
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Question Answer Marks AO Element Notes Guidance

competitors could produce cheaper

alternatives [an]
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Question Answer Marks AO Element Notes Guidance

14 Identify and explain two ways 6 Application marks may

that Cheung could use to increase be awarded for
revenue. appropriate use of the
following: city-centre,
Knowledge [2 × 1]: award 1 mark
small, shop, clothing or
for each way identified
related words such as
Application [2 × 1]: award 1 mark tshirts, fashion, children
for each relevant reference made to or parents, competitive
this business market, market research,
wholesaler, manufacturer
Analysis [2 × 1]: award 1 mark for in another country. Note:
each relevant explanation this business is a retailer
Points might include: • Increase not a manufacturer.
advertising (allow only once) [k] Do not award the same
attracting or persuading or analysis twice. E.g.
encourage new customers [an] to persuade OR encourage
his shop [app] • Sell to different OR attract are the same
target market [k] so do not sell only analysis points, as is
to children [app] so able to attract create awareness OR
different customer [an] • Increase inform. To be awarded,
prices [k] increases amount of development must be
revenue per item sold [an] • Lower different in each point
price or offer price promotions OR e.g. attract more existing
discounts [k] acts as incentive to customers or different
buy more [an] • Offer new OR types of customer.
additional products [k] e.g. different
clothing [app] to appeal to a new Do not award ways to
market segment [an] • Loyalty lower costs as this does
schemes [k] could encourage not answer the question.
existing customers to buy more
from him [an] • Use of sales
Do not award free
promotions e.g. competitions [k] •
sample as not appropriate
Increase quality [k] • Use
for this context.
e-commerce or sell via website [k]
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Question Answer Marks AO Element Notes Guidance

15 Identify two methods of pricing 2

a company could use for its
products.
Knowledge [2×1] award 1 mark for
each method
Points might include:
• Competitive pricing • Cost plus
pricing • Penetration pricing • Price
skimming • Promotional pricing

16(a) Identify and explain two possible 4 Application: sweets /

pricing methods that Amelia candy, new business,
might use. business plan, money
spent on packaging,
Knowledge [2] – award 1 mark for
secondary data, people
each role identified
like sweets, niche market,
Application [2] – award 1 mark for
adult.
each relevant reference to this
business
Relevant points might include:
• penetration pricing [k] as need to
get people to try her sweets [app]
• price skimming [k] as it’s a niche
market [app]
• cost plus pricing [k] as likely to
have large set up costs [app]
• promotional pricing [k]
• competitive pricing [k]
• psychological pricing [k]
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Question Answer Marks AO Element Notes Guidance

17 What is meant by ‘penetration 2

pricing’?
Clear understanding [2]: price is set
lower than competitor’s prices [1]
in order to be able to enter a new
market/launch a new product [+1]

Some understanding [1], e.g. set

low prices

18 What is meant by ‘penetration 2

pricing’?
Clear understanding [2]: price is set
lower than competitor’s prices [1]
in order to be able to enter a new
market/launch a new product [+1]

Some understanding [1], e.g. set

low prices
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Question Answer Marks AO Element Notes Guidance

19 Explain the possible effect on 4 Note: Candidates can

EDGE if the prices of its products identify and develop 2
are reduced. points or offer an
extended development of
Knowledge [2] – identification of
one point. Application
relevant points.
marks may be awarded
Application [2] – award up to 2 for appropriate use of the
marks for relevant explanation in following: use of
context of EDGE. numbers, phones, price
inelastic, customer/brand
Relevant points might include: loyalty, competitive
• Lower revenue [k] as demand is market, extension of
price inelastic [app] the additional product Z, product life
revenue will not make up for the cycle.
reduction in price of phones [app]
• Could attract more customers [k]
increasing sales beyond 800000
[app] • Damage their image [k]
leading to a reduction in customer
loyalty [app] • Profit margin will
fall [k].

20 What is meant when demand is 2

‘price elastic’?
Good knowledge [2] e.g. percentage
change in product demanded is
greater than the % change in price
OR correct formula
Some knowledge [1] e.g. demand
changes with price
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Question Answer Marks AO Element Notes Guidance

21 Do you think that cost plus 6

pricing is the best pricing method
for GK Hotel to use? Justify your
answer.
Knowledge [1] – award 1 mark for
identification of relevant issue(s).
Positive or negative points or
identifies alternative pricing method
[max 1]
Application [1] – award 1 mark if
relevant reference made to this
business
Analysis [2] – award up to 2 marks
for relevant development of point(s)

Evaluation [2] – justified decision

made as to whether cost plus
pricing is the best pricing method
for GK Hotel to use. Candidate’s
final decision can be either for or
against the statement. Relevant
points might include: • Cost plus •
Cost plus ensures costs are covered
[k] so can break even at 200 rooms
per month [app] • Other methods
might increase break-even point [k]
so might end up making a loss [an]
• Easy to calculate [k] so can work
out their profit margin [an] • Cost
plus might be uncompetitive [k] as
price set too high [an] •
Competitive pricing [k] so able to
respond to increased competition
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Question Answer Marks AO Element Notes Guidance

[app] • Promotional pricing [k] can

help attract new customers [an] so
able to gain different market
segments [app] • Depends on
objectives of business [k] • Level
of competition / state of market [k]
• How important price is for
customers [k]
Application marks may be awarded
for appropriate use of the following:
small, use of data, website, rooms,
bookings/ reservations, increased
competition, city centre, different
market segment.
Do not accept Hotel as application
as it is stated in the question

[Total: 92]