PED and Pricing Decisions

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
Knowledge, Application, Analysis, Evaluation - indicative content
- Demand is the willingness and ability of consumers to buy a product at a given time and at a given price
- The law of demand for a normal good dictates that when price increases, quantity demanded will fall
- This is because fewer people are likely to be willing to purchase the
membership as they believe it is not worth the higher price and/or fewer people are likely to be able to afford the higher price
- Therefore, if KAL increased the off-peak membership price from £19.95,
demand is likely to fall
- This may mean KAL would have fewer off-peak members using its facilities which may lead to a fall in revenue and therefore profit
- However, it would depend on how much the price increased as demand
may not fall by much if many people were still willing and able to purchase the membership at the higher price
- It would depend on the price elasticity of demand how much demand would fall as there may be few competitors offering a similar service at a lower
price
- It may depend on the income of members, as some people may have enough disposable income for an increase not to have too much of an effect and/or they may believe health and fitness are worth the extra
expense
- External influences, such as the rate of inflation or interest, may affect
demand. For example, if members have a lower disposable income due to
increases in either rate
- If the membership fee has not increased for some time, members may feel it is worth paying the higher price
- As customers have experienced the closure of some facilities they may prefer to pay a higher fee than lose access to other leisure
centres/swimming pools

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-2

Isolated elements of knowledge and understanding - recall based.
Weak or no relevant application to business examples.
Generic assertions may be presented.

Level 2

3-4

Elements of knowledge and understanding, which are applied to the business example.
Chains of reasoning are presented but may be assertions or incomplete.
A generic or superficial assessment is presented.

Level 3

5-7

Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
Analytical perspectives are presented, with developed chains of reasoning, showing cause(s) and/or effect(s).
An attempt at an assessment is presented, using quantitative and/or qualitative information, though unlikely to show the significance of
competing arguments.

Level 4

8-10

Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
A coherent and logical chain of reasoning, showing cause(s) and/or effect(s).
Assessment is balanced, wide ranging and well contextualised, using quantitative and/or qualitative information, and shows an awareness of
competing arguments/factors, leading to a supported judgement.

Question

Evaluate whether spending on advertising or selling to new markets would be more suitable for GourmIstra when trying to increase its profits.

Indicative content