Exam techniques - OCRDiscuss vs evaluate

Cost-plus pricing is the process of calculating the cost of making a product or service and then adding the amount of profit the business would like to make to give the selling price.

An advantage of cost-plus pricing, is that Sunita can make sure that she earns a set level of profit for each music lesson she sells, which is important especially to a small business. Sunita knows the cost of each music lesson and can add 10% to this to calculate the selling price. From her market research she has estimated that she could sell 100 music lessons per month meaning she would make a profit of £120 which can help her to budget effectively. However, Sunita has competition from two other local music stores and there is a risk that they might reduce their prices to make customers use their music lesson service instead. This means that it would be difficult for Sunita to achieve a competitive advantage, unlike penetration pricing for instance. I think that cost-plus pricing is not the best option for Sunita because she needs to try and win customers over the other local music stores, who are already more traditional and offering the music lessons. If she chooses penetration pricing she would be able to price her music lessons less than her competitors and gain more customers.

By locating in the town centre there will be many people walking past who are from the local area including children, meaning that Music to Your Ears is likely to have more customers leading to Sunita being able to make a profit.

However, there were two other music stores already located there when Music to Your Ears started. This would have likely made it harder for Sunita to get enough customers to make a profit.

Overall I think that the fact Sunita located her business in the town centre next to a local school is more important than the level of competition when deciding on a suitable location. This is due to the fact she wanted to offer lessons to local school children and being located out of town away from schools would mean she would find it more difficult to trade, so the high street is the best location for Music to Your Ears.

As it is a small business, promotion is very important to Sarma’s Café. This is because if the café business doesn’t promote itself effectively, it is likely to miss out on customers to one of the other cafés in the local area. This could lead to the recent increase in demand slowing down and the café losing customers. Therefore, the current expansion plans may not be possible. However, conducting lots of promotion could increase costs for the café, meaning that it could have to increase the prices of its exotic coffee.

It could be argued that promotion is not the most important element of the marketing mix, because the café specialises in exotic coffees sourced from around the world. Therefore, the product could be considered to be the most important element of the marketing mix for the café, especially because it is considering starting to sell food as well. However, promotion is extremely important for a business with a niche unique selling point (USP) in a busy town centre.

Overall, I believe that promotion is not the most effective element of the marketing mix for Sarma’s Café. This is because elements such as product and price are vital in a busy town centre with lots of other cafés. Also, with the business having such a strong USP, product may be the most important element of the marketing mix. Whether promotion is considered to be the most effective element of the marketing mix for Sarma’s Café depends on whether consumers within the local area value the USP of exotic coffees, or whether they simply want any coffee available from a café. The most important point is that Sarma’s Café is a business that thrives on having a USP.