Pricing

Question 1

Sustainable pricing and the natural step Framework (4)

Answer 1

1) a price that fails to include the costs of eliminating or offsetting greenhouse gas emissions or that fails to include the recovery and reuse of metals and plastics, violates the first system condition.
2) a price that is kept low through the systemic use and disposal of new synthetic compounds violates the second system condition.
3) a price that relies on the systematic degradation of the earths natural systems, such as forests, rivers and fisheries, violates the third system condition.
4) a price that can only be achieved through the exploitation and mistreated of workers violates the fourth system condition.

Question 2

Sustainable pricing

Answer 2

• pricing is affected by market factors. From a systems perspective, those must also include social and environmental costs.
• 3 types:
  1) cost based pricing
  2) value based pricing

Question 3

Cost based pricing (4)

Answer 3

• start with the product and its costs
• set a price that covers the cost
• communicate value to customers.
• can make products affordable for huge populations of very poor consumers.

Question 4

Value based pricing

Answer 4

• research customers perceptions of value and the price they are willing to pay.
• find a way to make the product at a reasonable cost to riveting a reasonable profit or achieve other objectives.

Question 5

Barriers to sustainable pricing and explanation

Answer 5

1) Competitive barriers - if two products are the same, most consumers will choose the lower price.
2) political barriers - bringing in taxes that use chemical and factories.
3) cultural barriers - current lifestyles, values and expectation are deeply ingrained and difficult to change.

Question 6

Externalised pricing influencers (4)

Answer 6

1) customers
2) competitors
3) channel members
4) legal, regulatory and ethical concerns

Question 7

Customers (2)

Answer 7

1) consumers
- perceptions of value, behaviour, and attitudes all affect consumers reaction to pricing.

2) business customers
- globalisation has increased range of choices.
- customers frequently search for the lowest price.
- emphasis on building relationships, thereby increasing switching costs.

Question 8

Competitors (2)

Answer 8

• by analysing the pricing strategies of competing products, a company can get a better sense of:
  > the alternatives available to customers, and
  > competitors pricing objectives and strategies.
• pricing is often highly visible
  > often Experts downward pressure on profits and limiting pricing options.

Question 9

Channel members (2)

Answer 9

• companies must consider the pricing expectations of their distribution partners.
• impact of the Internet = downward price pressure due to
  > more efficient transaction capabilities
  > convenient price comparisons, and
  > more intense competition, sometimes from unexpected sources.

Question 10

Legal and regularity considerations (5)

Answer 10

• companies need to comply with a variety of pricing laws and regulations. Some of these include:
  > no price collisions: companies coming together and setting a price.
  > no price discrimination: can’t change 1 price for one and then change to another.
  > no predatory pricing: setting low periods to get rid of other competitors.
  > price limits.

Question 11

Ethical concerns

Answer 11

Some examples of ethical decisions in pricing:

• is it ethical to raise prices during an emergency, when products may be scared or particularly valuable?
• should a company set a high price for an indispensable product, knowing that some customers will be unable to pay?

Question 12

Key external influences on pricing strategy include: (4)

Answer 12

1) cost and break even objectives
2) targeting and positioning strategies
3) product strategy
4) other marketing decisions.

Question 13

Cost and break even objectives (2)

Answer 13

• costs typically establish the theoretical ‘floor’ of the pricing range.
• break even point: the sales level at which revenue covers cost.

Question 14

Targeting (2) and positioning (2)

Answer 14

1) target market
- price sensitive customers would likely require lower price points.
- affluent customers would likely tolerate higher price points.

2) positioning
- a product positioned as being a good value will likely require a lower price point.
- a product positioned as a luxury good, or as a status symbol would best be supported by a higher price point.

Question 15

Product strategy (4)

Answer 15

1) introduction - decision between skim and penetration pricing
2) growth - pricing used to stimulate demand, drive toward break even point.
3) maturity - pricing used to defend market share, retain customers, pursue profitability and expand into additional channels.
4) decline - pricing can be used to stimulate demand and clear out old products, or to milk existing products for profitability at end of life.

Question 16

Life cycle costing

Answer 16

• attention to identify all costs (internal and external) associated with a product throughout its entire journey from manufacturing to eventual disposition.
• can be used to identify all the financial, social and environmental costs of bringing a product to the market.

1) total product costs - determined by using full cost accounting.
2) life cycle costing
- purchase costs: all costs associated with searching for products, gathering and comparing information about choices, and transporting the product home.
- product use costs: any costs of switching from another product as well as the costs of maintenance, wear and tear, and energy and supplies needed to use the product.
- disposition costs: fees for garbage, recycling and other post use collection, such as transport to an op shop.
- storage costs: rental of commercial self storage units.

Question 17

Complementary currencies and exchange schemes (4)

Answer 17

1) complementary currencies
2) bartering
3) local exchange trading scheme
4) time banks

Question 18

1) complementary currencies (1)

2) bartering (3)

Answer 18

1) complementary currencies
- non monetary means of paying for goods and services.

2) bartering
- direct trading of foods and services without using money as an exchange medium.
- tend to be limited to smaller geographic regions.
- choosing to trade in skills, talents and labour.

Question 19

3) local exchange trading scheme (2)

4) time banks (3)

Answer 19

3) local exchange trading scheme
- a community based network of people who trade goods and services, often by listing wants and offers in local directories.
- e.g. A plumber needing a painter, a painter needing a hair dresser, a hairdresser needing a kitchen tap installed.

4) time banks
- participants voluntarily provide services to others in a community.
- for their services, they deposit hours that they can withdraw later and spend for services they need.
- examples include, childcare, gardening and dog walking.

Question 20

Sustainable pricing definition

Answer 20

• accounts fully for the economic, environmental, and social costs of a products manufacture and marketing while providing value for customers and a fair profit for business.