How do businesses decide what to sell and how much to charge?
Two elements of the marketing mix (the four Ps): product, including the product life cycle and the Boston Matrix, and price, including the main pricing strategies and the factors that affect price.
A focused answer to AQA GCSE Business 3.5.3, covering the product element of the marketing mix (the product life cycle and Boston Matrix) and the price element (pricing strategies and the factors affecting price).
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What this dot point is asking
AQA wants you to explain the product and price elements of the marketing mix, including the product life cycle and the Boston Matrix, the main pricing strategies, and the factors that influence the price a business sets.
The marketing mix
Product: the product life cycle
Extension strategies, such as new packaging, lower prices, new features or new markets, can prolong the maturity stage and delay decline. The life cycle matters because a product's stage shapes the whole marketing mix: heavy promotion and a skimming or penetration price at introduction, wider distribution during growth, and extension strategies or price cuts at maturity to fight off decline. A business with all its products in decline is in trouble, which is why firms keep launching new products to replace ageing ones, a balance the Boston Matrix helps them manage.
Product: the Boston Matrix
Price and pricing strategies
The price a business can charge depends on its costs (it must usually cover them to make a profit), the competition (it cannot stray far from rivals for similar goods), the level of demand (high demand allows higher prices), and the type of product (a luxury or unique item can command a premium, an everyday staple cannot). The right strategy also depends on the stage in the product life cycle and the target market: skimming suits a new, unique product with eager early adopters, while penetration suits entering a competitive market where winning share quickly matters most.
Try this
Q1. State the four stages of the product life cycle. [4 marks]
- Cue. Introduction, growth, maturity and decline.
Q2. Explain one situation in which price skimming is a suitable strategy. [2 marks]
- Cue. For a new, unique product such as the latest technology, where customers will pay a high launch price.
Exam-style practice questions
Practice questions written in the style of AQA exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
AQA 20203 marksA business makes a product at a total cost of per unit and uses cost-plus pricing with a mark-up of . Calculate the selling price per unit. (Paper 2, Section B)Show worked answer →
A calculation question, method rewarded. Cost-plus pricing adds a percentage mark-up to the unit cost.
Mark-up of .
Selling price cost mark-up per unit.
Full marks need the mark-up figure and the final price. A common error penalised is taking of the wrong base or treating as the price rather than the addition. The selling price is , giving the business an profit per unit before other costs.
AQA 20229 marksA technology company is launching an innovative new smartwatch with no direct competitors. Justify whether the company should use price skimming or penetration pricing. (Paper 2, Section C)Show worked answer →
A 9-mark justify question: choose, apply, weigh the alternative.
Case for skimming: the smartwatch is innovative with no direct rivals, so the company can set a high launch price that early adopters will pay, recovering the high development costs quickly before competitors arrive, then lower the price later.
Case for penetration: a low launch price would win market share fast and deter rivals, but it sacrifices the high margins available while the product is unique and may signal low quality for a premium tech item. A supported judgement might recommend skimming because the lack of competition and the eager early-adopter market let the firm charge a premium and recoup costs, switching to lower prices as rivals appear. The decision turns on the lack of competition. Markers reward a clear choice justified against the alternative and applied to the smartwatch.
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Sources & how we know this
- AQA GCSE Business (8132) specification — AQA (2017)