Page 179 - Cambridge IGCSE Business Studies

12: Marketing mix: product and price

Theme park visitor numbers fall by 10%

One of the country’s major tourist attractions 10% compared to the same period last year.
has announced that visitor numbers in the The management of the theme park increased
fi rst three months of the season have fallen by entry prices by 3% for the current season.

1 Why is the 5% increase in petrol prices only expected to reduce sales by 2%?
2 Why has a 3% increase in the entry ticket to the theme park reduced visitor numbers by 10%?
3 Discuss how the information in the two articles might affect the demand for goods and services by consumers like

Innocent Pfupa.

Price elasticity of demand and pricing decisions
If managers know the value of the price elasticity of demand for their products,
then they can calculate the effect on sales of any proposed increase or decrease

in price.
KEY TERM We know that any increase in price will decrease sales and any decrease in price
will increase sales. However, what is more important is how a change in price will
Revenue: the amount earned
aff ect revenue.
by a business from the sale of its Table 12.4 shows the eff ect on revenue of changes in price for products with
products. 177
price elastic demand and price inelastic demand.

Price change Price elasticity of demand Effect on revenue

Increase price Price inelastic demand Increase revenue

Decrease price Price inelastic demand Decrease revenue
Increase price Price elastic demand Decrease revenue
Decrease price Price elastic demand Increase revenue

Table 12.4 The relationship between changes in price, price elasticity of demand
and revenue

From the above table we can see that if the marketing objective is to increase
revenue then this could be achieved in one of two ways:

■ increasing the price if the product has price inelastic demand
■ decreasing the price if the product has price elastic demand.

TEST YOURSELF
1 Why is price important to both the producer and the consumer?
2 Why is it unlikely that a business will be able to use a market skimming strategy in
the long-run?
3 Why is the price elasticity of demand not the same for all products?