Chapter 13 - Maximiliano Pi

Question 1

Mention two main methods of pricing.

Answer 1

Cost-plus pricing and competitive pricing.

Question 2

What is it meant by dynamic pricing?

Answer 2

Businesses change product prices, usually when selling online, depending on the level of demand.

Question 3

Define price skimming.

Answer 3

It is where a high price is set for a new product on the market.

Question 4

State limitations when using penetration pricing.

Answer 4

The limitations to this strategy is that the product is sold at a low price so profit may be low, customers can get used to “low quality” products and reject the business if they raise the prices and it might not be appropriate for a branded product.

Question 5

Outline 2 benefits of competitive pricing.

Answer 5

The benefits are that sales are likely to be high as price is at realistic level and product isn’t over or under priced, it avoids price competition which may reduce profits for all businesses in the industry.

Question 6

Discuss a time in which promotional pricing could be useful.

Answer 6

The advantages are that it can be useful for getting rid of unwanted inventory that will not sell, and helps renew interest in a product if sales are falling.

Question 7

Analyse the characteristics of price skimming.

Answer 7

Benefits of the strategy is that it can help to establish a product as being of good quality, profit can be made on the high price, even higher price if the product is unique.
The limitations are that the high price may discourage potential customers from buying it and that good results can encourage more competitors into the market.

Question 8

Describe cost-plus pricing.

Answer 8

It is the cost of manufacturing the product plus a profit mark-up. It calculates the total cost of producing an output and adds a percentage for profit.

Formula = total cost / output X %mark-up = profit on each unit.

Question 9

To what extent products have different prices?

Answer 9

Products have different prices that vary depending on their quality and it is important to choose a price that fits the rest of the marketing mix for the product. A product of a high quality will be aimed at those who have higher incomes and therefore have high prices.

Question 10

Appropriate pricing strategies for:

1. A watch similar to other watches sold in shops -
2. New cell phone developed that is a lot higher quality than the existing ones -
3. A chocolate bar that has new brands brought and is competing with them -
4. New soap of powder is launched and was just released in busy market -

Answer 10

1. Competitive pricing
2. Price skimming
3. Competitive pricing
4. Penetration pricing