Analyse how a business might use a price discrimination strategy to increase profit.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. A definition of price discrimination – the charging of different groups of consumers different prices for the same product giving opportunities to increase profit (as opposed to a single price for all these different markets).
2. Conditions required for successful price discrimination policies may well be spelt out:
3. [Condition] company must be able to identify different market segments.
4. [Condition] different segments must have different price elasticities (PED).
5. [Condition] market segments must be kept separate either by time, physical distance, or nature of use (e.g. Microsoft Office – available at a discount only to educational institutions).
6. [Condition] there must be no seepage between the segmented markets.
7. [Condition] the company must have some degree of monopoly power.
8. Examples of possible price discrimination policies to improve profit:
9. [Example] rail travellers sub-divided between commuter and casual travellers
10. [Example] cinemas selling differently priced tickets for adults, children, students, seniors
11. [Example] different prices for export market products from those sold in home country
12. [Example] splitting a market between peak and off-peak use
13. [Example] charging many different prices for airline travel
14. (7-8 marks) Good analysis of how a business might use a price discrimination strategy to increase profit
15. (5-6 marks) Some analysis of how a business might use a price discrimination strategy to increase profit
16. (3-4 marks) Some application of price discrimination to business pricing decisions.
17. (1-2 marks) Understanding of price discrimination.
18. (0 marks) No creditable content
19. New product development clearly involves finance and the finance department will be involved in issues such as:
20. [Finance involvement] allocating resources for new product development.
21. [Finance involvement] major finance required for car design and development.
22. [Finance involvement] to support innovative technology, design and production.
23. [Finance involvement] cost and value management, financial planning for new product platforms.
24. New product development clearly is a concern of operations management and the operations department will be involved in issues such as:
25. [Operations involvement] significant investment likely to meet different customer demands e.g. fuel conservation, environmentally friendly vehicles.
26. [Operations involvement] respond to new competitive models.
27. [Operations involvement] cars have a relatively short product life-cycle and models may be at the decline stage.
28. [Operations involvement] A new focus on customer required performance in safety, reliability, fuel consumption, speed, driver and passenger experience.
29. Clearly there needs to be synergy between the operations and finance departments of a car manufacturing company if the company is to produce cars that match the demands of customers in a very competitive industry and which are cost effective and financially viable. There needs to be synergy between the engineers and the management accountants.
30. Strong answers may well make an evaluative point that collaboration between more than these two departments is required e.g. role of marketing department.
31. (9-12 marks) Effective evaluation of why both the finance department and the operations department of a car manufacturing company should be involved in new product development.
32. (7-8 marks) Limited evaluation of why both the finance department and the operations department of a car manufacturing company should be involved in new product development.
33. (3-6 marks) Analysis and some application of why new product development should involve the finance department and the operations department.
34. (1-2 marks) Understanding of new product development and/or finance and/or operations.
35. (0 marks) No creditable content