Lecture 6 - Pricing (X)

Question 1

what is the economist theory of price

Answer 1

• the price for a specific good or service is determined by the relationship between supply and demand at any given point
• the demand curve is used to conceptualise the relationship between demand and price levels

Question 2

Limitations of demand curve

Answer 2

• it is hard to plot accurately; there is no one demand curve that relates to price and demand in real life scenarios
• it does not take into account other factors such as promotions, product utility, innovation, price

Question 3

what are the 3 methods of pricing

Answer 3

• cost
• competition
• market

Question 4

Types of cost factors that affect pricing decisions

Answer 4

• Fixed costs, costs that don’t care with sales or production levels
  e.g. exec salaries, rent
• variable costs, costs that do vary directly with level of production
  e.g. raw materials

Question 5

what is full cost pricing

Answer 5

• it helps to give an indication of the minimum price that necessary to make profit

Question 6

what is direct cost pricing

Answer 6

• it does not help in covering the full cost, thus might not help in yielding profit or substantial revenue
• it is useful in services marketing

Question 7

what is competitor orientated pricing

Answer 7

• this focuses on competitors rather than cost, when setting the price

2 forms
- going rate pricing
- competitive bidding

Question 8

what is going rate pricing

Answer 8

• setting the price in accordance with the market price

Question 9

what is competitive bidding

Answer 9

• a process where multiple suppliers bid against each other for a particular project, job or contract.
• this allows the buyer to choose the most cost effective and efficient supplier.

Question 10

what is market orientated pricing

Answer 10

• more difficult than the other two types
• it helps a business reach a sweet spot between building product value and pricing.

Question 11

what are the 4 types of skimming and penetration pricing approaches

Answer 11

• rapid skimming - high price, high promotion
• slow skimming - high price, low promotion
• rapid penetration - high promotion, low price
• slow penetration - low promotion, low price

Question 12

characteristics of high price market segments

Answer 12

• perceived value of product
• customers ability to pay
• excess demand
• lack of competition
• switching costs