Chapter Ten

Question 1

ꕤWhat is the pricing policy ?

Answer 1

-The pricing policy specifies what and how the business will work out the PRICING of its product !!!!!!

Question 2

ꕤWhat is the Importance of the Pricing policy ?

Answer 2

• Pricing affects the number of products that an ENTERPRISE is able to sell, which affects profitability.
• If pricing is low, customers may perceive product as low quality
• if the pricing is high, fewer customers may buy the product.
• Price of a Product can influence the customers ATTITUDE towards the product/service.

Question 3

ꕤOutline and discuss the pricing techniques ? :

ꕤCost-based 
ꕤMark-up pricing 
ꕤCustomer based pricing 
ꕤCompetition based 
ꕤPromotional pricing

Answer 3

ꕤCost-based
-Involves setting the price of a product based directly on its COST of making it

ꕤMark-up pricing
- It is calculated as a PERCENTAGE

ꕤCustomer based pricing
-it is when companies set certain targets to achieve

ꕤCompetition based
-Sets it’s price based on what COMPETITORs are charging.

-The more competition in the market, the lower pricing are likely to be

ꕤPromotional pricing

• Businesses offer SALES or special OFFERS to attract customers
• It is used when the price is lowered for a short period of time.

Question 4

ꕤDiscuss/outline the pricing techniques?

ꕤPenetration pricing
ꕤPsychological pricing
ꕤBait-pricing
ꕤPrice skimming

Answer 4

ꕤPenetration pricing

• Products are sold at a very low price to attract costumers
• aim to convince consumers to buy it

ꕤPsychological pricing
- This strategy is used when the bussiness wants the consumer to respond on an emotional basis rather than rational one.

• it is used to give an impression that an item is cheaper than it really is
• R699 when it’s actual R700

ꕤBait-pricing
- Prices are usually SET LOWER than the items COST price to attract customers.

-To used to art tomorrow customers into a shop to buy the product and their items.

ꕤPrice skimming
-Prices attached to a NEW INNOVATIVE product that is considered unique and prestigious.

-Higher prices are charged to test the demand

Question 5

ꕤMention FACTORS that influence pricing ?

Answer 5

ꕤInput costs
- The higher the input costs, the higher the final price.

ꕤDemand for the product
-The higher the demand, the higher the production volume, the lowest the input costs, the lower the final price.

ꕤTarget Market
-Income level of the target market

ꕤType of Product
-Luxury products can be priced higher

ꕤPricing technique used to determine the price :
-Promotional pricing could be lower than demand oriented pricing

Competitive and substitute products
-if there are similar products that could replace a product, a high price may result in loss of sale to the substitute

ꕤThe economic climate and availability of goods/services
-When there is a shortage of a certain product, people are prepare to pay more for it.

Question 6

What are the forms of markets ? :

Answer 6

Perfect competition :
-There are many buyers and sellers
- Products are similar and substitute products.
E.g Shares being traded on JSE

Monopolistic competition :

• There are many suppliers/sellers
• Each supplier has his/her own brand of a particular product
• E.G: Car manufacturers/dealers, NIssan.

Oligopoly :

• Only a few suppliers/sellers control the prices of products
• Product are same
• MTN, Vodacom

Monopoly :

• Only one supplier/seller controls prices of products
• E.G : Eskom