Pricing

Question 1

Why is auction often used ?

Answer 1

It is an instrument to sell products and also measure the customers willingness to pay

Question 2

How can we test the willingness to pay for the overall market?

Answer 2

Expert interviews, Analogies, Test markets, Panel data analysis

Question 3

How do we test the willingness to pay for a single potential customer?

Answer 3

Price scanning, Lottery, Reverse pricing, Auctions

Question 4

If we talk about the price elasticity in demand, what do we mean?

Answer 4

It measures the responsiveness of demand for a good with respect to changes in the price of that good.
The price elasitcity indicates the percentage change of the demand that results from a 1% increase in price.

Question 5

Describe cross elasticity of demand

Answer 5

It measures the responsiveness of the demand of a good to a change in the price of another good

Question 6

What is Value-Based-Pricing?

Answer 6

The price level determinates the level of the net profit of both transaction parties.
In othe words: It is the setting of a product or service’s price based on the benefits it providers to consumers - it provides something unique and valuable. The price relies on the consumer’s perception of the value. It is determined by such things as trends and the feelings surrounding the product.

Question 7

What is the problem with valua based pricing?

Answer 7

Its difficult to measure and the price is formed by the subjective evaluation of the customers

Question 8

We have two different types of value based pricing - explain both of them

Answer 8

Usage Based Pricing - Software-as-a-Service, Infrastructure-as-a-Service, Power by the hour, Pay for the volume –> Based on usage
Outcome Based Pricing - Build-own-operate-transfer, Transaction participation, Performance-based logistics, KPI based payments, Pay-What-you-want –> Based on results (price per unit you produce)

Question 9

Explain the different types of price differentiation

Answer 9

Without self selection - A company sell the same product or service to various customers, but with different prices. This is to maximize their profit through the customers willingness to pay.
It can be to individual customers or to markets, groups of customers etc. Depends on the demand level, purchasing power, degree of competition and costs, customer value
With self selection - Differentiation is time-based or quantity based (bonuses, discounts etc.)

Question 10

Explain the three different types of quantity-based discounts

Answer 10

• Bonus/Volume discount (common in steel industry)
• Discount per order (based on volume per order, ex: full truck loads)
• Combination of fix price and quantity-related variable price (Based on split tariffs, ex: rental services - rent per day + km charge)

Question 11

What is needed to have a successful and effective discount system?

Answer 11

• Custumer segmentation/prioritization
• Performance orientation (bonuses/discounts needs to be linked to a certain action)
• Low complexity (number of discounts and bonuses has to be limited)
• Transparency
• Consistent application (Customer does not achieve goal - cancel discount)
• Area of discretion (system of terms and conditions needs flexibility so that it is applied consistently by the sale staff)