Chapter 13: Price

Question 1

Reasons for a business to implement pricing methods?

Answer 1

1 Enter a new market
2 Increase market share
3 increase profits
4 to make sure all costs are made and target profit earned

Question 2

Impact on psychology on price decisions?

Answer 2

1 High price for a high quality product, means high income customers purchase as a status symbol
2 if price is set just below a whole number, can give an image of product being cheaper
3 Charge low prices for regular basis products
4 Repeat sales are made

Question 3

What are the methods of pricing?

Answer 3

1 Cost plus pricing
2 Penetration pricing
3 price skimming
4 Promotional pricing
5 Competitive pricing

Question 4

What are the Benefits/ Disadvantages of Costplus pricing

Answer 4

Benefits
1 Easy to apply
2 Can be used in different markets
3 Each product is guaranteed profit

Disadvantages:
1 Business could loose sales if competitors have lower selling price
2 Total profit requires large amount of sales
3 No incentive

Question 5

What are the benefits/disadvantages of competitive pricing?

Answer 5

Benefits:
1 Sales are likely to be high as product isn’t over priced
2 Avoids price competition
3 Used when products are difficult to tell the difference between competitors products

Disadvantages:
1 If costs of production are higher than competitors, competitive prices could lead to a loss
2 Higher quality products are needed to be sold at higher prices than competitors
3 Detailed market research of competitors is required

Question 6

What are the benefits/disadvantages of Penetration pricing?

Answer 6

Benefits:
1 Used for newly launched products
2 Should ensure that sales will be made
3 Market share increases

Disadvantages:
1 Not much profit is made with each unit sold
2 Customers may be get used to low prices thus not happy about increase
3 Might not be appropriate for branded products- quality

Question 7

What are the Benefits/Disadvantages of Price skimming?

Answer 7

Benefits:
1 High quality image
2 High research and development costs can be recouped
3 If product is unique, business has opportunity to make high profits before competitors copy

Disadvantages:
1 High price may discourage potential customers
2 The high price and profitability may encourage competitors to enter market

Question 8

What are the Benefits/disadvantages of promotional pricing?

Answer 8

Benefits
1 Can get rid of unwanted stock
2 Renew interest in older products

Disadvantages:
1 The revenue will be lower
2 it might lead to price competition