Rachel's business produces and sells chocolate bars. Quality is important. Rachel is a sole trader who received government support when she started up her business. The business operates in a competitive market. Rachel is considering ways to increase sales of her best-selling product. She is also planning to introduce a new chocolate bar. Rachel knows deciding which pricing method to use for a new product is important. Do you think price skimming is the best pricing method for a business to use when introducing a new product? Justify your answer.
Exam No：0450_m25_qp_12 Year：2025 Question No：2(e)
Answer:
Award 1 mark for each relevant point [max 2].
Award 1 mark for each relevant explanation [max 2].
Award up to 2 marks for justified decision as to whether price skimming is the best pricing method to use when introducing a new product.
Points might include:
Price skimming:
- Gives the image of high quality \([\mathrm{k}]\) which may increase reputation [an]
- May be quick to recover research/development costs [k] to break even sooner [an]
- Increase profit margin [k]
- (High price) may encourage competitors to enter the market \([\mathrm{k}]\) which can decrease market share [an]
- (High price) may decrease demand \([\mathrm{k}]\) which may decrease revenue [an]
Other pricing methods include:
- Penetration pricing [k] as the low price may be more affordable [an] which increases sales [an]
- Cost-plus pricing [k] as is simple to use [an]
- Competitive pricing \([\mathrm{k}]\) so should not lose sales to competition on price alone [an]
Other appropriate answers should be credited.
Justification might include:
Price skimming means that it may be quick to recover development costs [k] which means funds can be reinvested back into the business [an]. Whereas using penetration pricing [k] can make the product more affordable [an]. Price skimming is not the best method because the high price might discourage customers from trying the product whereas penetration pricing could generate more sales [eval] and increase market share for the new product [eval].
Award 1 mark for each relevant explanation [max 2].
Award up to 2 marks for justified decision as to whether price skimming is the best pricing method to use when introducing a new product.
Points might include:
Price skimming:
- Gives the image of high quality \([\mathrm{k}]\) which may increase reputation [an]
- May be quick to recover research/development costs [k] to break even sooner [an]
- Increase profit margin [k]
- (High price) may encourage competitors to enter the market \([\mathrm{k}]\) which can decrease market share [an]
- (High price) may decrease demand \([\mathrm{k}]\) which may decrease revenue [an]
Other pricing methods include:
- Penetration pricing [k] as the low price may be more affordable [an] which increases sales [an]
- Cost-plus pricing [k] as is simple to use [an]
- Competitive pricing \([\mathrm{k}]\) so should not lose sales to competition on price alone [an]
Other appropriate answers should be credited.
Justification might include:
Price skimming means that it may be quick to recover development costs [k] which means funds can be reinvested back into the business [an]. Whereas using penetration pricing [k] can make the product more affordable [an]. Price skimming is not the best method because the high price might discourage customers from trying the product whereas penetration pricing could generate more sales [eval] and increase market share for the new product [eval].
Knowledge points:
3.3.1.1. The limitations and benefits of developing new products
3.3.1.2. Brand image; impact on sales and customer loyalty
3.3.1.3. The role of packaging
3.3.1.4. The product life cycle: main stages and extension strategies; draw and interpret a product life cycle diagram
3.3.1.5. How stages of the product life cycle can influence marketing decisions, e.g. promotion and pricing decisions
3.3.2.1. Pricing methods (benefits and limitations of different methods), e.g. cost plus, competitive, penetration, skimming, and promotional
3.3.2.2. Recommend and justify an appropriate pricing method in given circumstances
3.3.2.3. Understand the significance of price elasticity: difference between price elastic demand and price inelastic demand; importance of the concept in pricing decisions (knowledge of the formula and calculations of PED will not be assessed)
3.3.3.1. Advantages and disadvantages of different channels, e.g. use of wholesalers, retailers or direct to consumers
3.3.3.2. Recommend and justify an appropriate distribution channel in given circumstances
3.3.4.1. The aims of promotion
3.3.4.2. Different forms of promotion and how they influence sales, e.g. advertising, sales promotion
3.3.4.3. The need for cost-effectiveness in spending the marketing budget on promotion
3.3.5.1. Define and explain the concept of e-commerce
3.3.5.2. The opportunities and threats of e-commerce to business and consumers
3.3.5.3. Use of the internet and social media networks for promotion
Solution:
Download APP for more features
1. Tons of answers.
2. Smarter Al tools enhance your learning journey.
IOS
Download
Download
Android
Download
Download
Google Play
Download
Download