AQA · GCSE · Business

    Course version: 8132 · Version from Sept 2017

    Price, product, promotion and place (4Ps): Students should have an…

    Full specification wording

    The elements of the marketing mix: price, product, promotion and place (4Ps): Students should have an understanding of the basic relationship between price and demand ie as prices rise demand is likely to fall.

    Price and demand are linked: as the price of a product rises, demand is likely to fall, and as price falls, demand is likely to rise.

    Checked against the AQA 8132 specification (opens in a new tab) on .

    • Point 14 of 80
    • 4 key terms

    Study notes

    From the checked teaching notes for this specification point.

    The idea

    Price and demand are linked: as the price of a product rises, demand is likely to fall, and as price falls, demand is likely to rise. This is the basic inverse relationship. A business setting a high price may earn a higher margin per unit but sell fewer units, while a low price may attract more customers but reduce the margin. The strength of the response depends on the product and market, for example demand for a luxury item may be less responsive than demand for a product with many close substitutes. Businesses use this relationship when choosing pricing strategies such as penetration pricing, price skimming or competitive pricing, and when forecasting revenue at different price points.

    What earns the marks

    • States the inverse relationship: as price rises, demand is likely to fall, and as price falls, demand is likely to rise.
    • Explains the effect on revenue and profit, for example a higher price raises margin per unit but may reduce total units sold.
    • Explains that the size of the response depends on the product, for example whether it is a necessity or has close substitutes.
    • Applies the relationship to a pricing decision, such as penetration pricing to build demand or skimming to target early buyers.
    • Uses the relationship to predict a likely change in demand when a given price change is proposed.

    Common mistakes and how to put them right

    • Treating the relationship as fixed for every product.

      Put it right by explaining that the response to a price change varies with the product and market.

    • Assuming a price rise always increases revenue.

      Put it right by explaining that revenue depends on both price and the number of units sold.

    • Confusing demand with revenue.

      Put it right by explaining that demand is the quantity customers are willing to buy, while revenue is price multiplied by quantity sold.

    Exam tips

    • Use the phrase likely to fall or likely to rise to reflect that the relationship is a tendency, not a certainty.
    • Support each point with a specific price change and its likely effect on the number of units sold.
    • Link the price and demand relationship to the pricing strategy named in the case study.

    Try the lesson

    The start of the The elements of the marketing mix: price, product, promotion and place (4Ps): Students should have an understanding of the basic relationship between price and demand ie as prices rise demand is likely to fall. lesson, made from checked teaching notes for this specification point.

    Have a go first

    According to the basic relationship between price and demand, what is likely to happen to demand when a business raises its price?

    Listen

    Price and demand are linked: as the price of a product rises, demand is likely to fall, and as price falls, demand is likely to rise. This is the basic inverse relationship. A business setting a high price may earn a higher margin per unit but sell fewer units, while a low price may attract more customers but reduce the margin. The strength of the response depends on the product and market, for example demand for a luxury item may be less responsive than demand for a product with many close substitutes. Businesses use this relationship when choosing pricing strategies such as penetration pricing, price skimming or competitive pricing, and when forecasting revenue at different price points. A strong answer earns marks for these points. States the inverse relationship: as price rises, demand is likely to fall, and as price falls, demand is likely to rise. Explains the effect on revenue and profit, for example a higher price raises margin per unit but may reduce total units sold. Explains that the size of the response depends on the product, for example whether it is a necessity or has close substitutes. Applies the relationship to a pricing decision, such as penetration pricing to build demand or skimming to target early buyers. A common slip: Treating the relationship as fixed for every product. Instead, explaining that the response to a price change varies with the product and market. Exam tip: Use the phrase likely to fall or likely to rise to reflect that the relationship is a tendency, not a certainty.

    See it

    A top-down flowchart. On the left, a node reading 'Price rises' points down to 'Demand likely to fall', which points down to 'Higher margin per unit but fewer units sold'. On the right, a node reading 'Price falls' points down to 'Demand likely to rise', which points down to 'More customers but lower margin'. Both of these lower nodes point down to a single node reading 'Revenue depends on price and units sold'.
    Shows the inverse relationship between price and demand and how a price change affects margin, units sold and revenue.

    Key words

    Say what each word means before you turn the card.

    Price as an element of the marketing mix

    Try answering aloud or in your head before turning the card.

    Demand and customer response

    Try answering aloud or in your head before turning the card.

    Revenue and profit

    Try answering aloud or in your head before turning the card.

    Pricing strategies

    Try answering aloud or in your head before turning the card.

    See every definition
    Price as an element of the marketing mix
    One of the elements of the marketing mix, alongside product, promotion and place, used by businesses when choosing pricing strategies.
    Demand and customer response
    The quantity customers are willing to buy, which is likely to fall as prices rise and likely to rise as price falls.
    Revenue and profit
    Revenue is price multiplied by quantity sold, and a higher price may raise margin per unit but reduce total units sold.
    Pricing strategies
    Choices such as penetration pricing, price skimming or competitive pricing, used when forecasting revenue at different price points.

    Label the diagram

    Some boxes have lost their names. Pick the right name for each number.

    The diagram again, with 3 boxes numbered instead of named. A top-down flowchart. On the left, a node reading 'Price rises' points down to 'Demand likely to fall', which points down to 'Higher margin per unit but fewer units sold'. On the right, a node reading 'Price falls' points down to 'Demand likely to rise', which points down to 'More customers but lower margin'. Both of these lower nodes point down to a single node reading 'Revenue depends on price and units sold'.

    • 1Box 1

    • 2Box 2

    • 3Box 3

    0 of 3 labelled

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