Pricing strategy

Question 1

Importance of pricing

Answer 1

-Primary consideration customers will consider when buying your product
-Determine profit margins - profitability
-Pricing often measure the quality -higher price ,higher quality
-Also align with strategy of company has chosen
-Demand regulator (demand ,volme and salesdepend of on the price)

Law of demand

Think - Demand Curve /Supply Curve and the equilibrium
Price elasticity that measure the change in demand due to change in price
-sensitivity(elastic) = larger proportion impact and insensitivity(inelastic)=smaller proposition impact

Law of supply
Increase in price g/s then suppy of g/s will increase
positive relationship between the price level and the level of demand

higher P /Higher Q and vice verse

Question 1

Importance of pricing

Answer 1

-Primary consideration customers will consider when buying your product
-Determine profit margins - profitability
-Pricing often measure the quality -higher price ,higher quality
-Also align with strategy of company has chosen (differentiator or cost ….)
-Demand regulator (demand ,volume and sales depend of on the price)

Think - Demand Curve /Supply Curve and the equilibrium

Question 2

Profit maximisation

Answer 2

“Sustainable value creation”

1.how decisions are made in order to max profits
- try and maximise contribution earned

better to sell more less profitable items than less more profitable items.
So in theory a company should simply keep selling additional units until the incremental value from an additional sale becomes zero. In other words, it keeps selling units at whatever price it can get as long as the company makes a little bit of money from each new sale.
Principle = marginal revenue equal marginal cost.

2.Types of markets and impact of price

Monopoly
- one firm producing (eskom)
-price setter
-barries to entry - high costs

spectrum
perfect competition
-many firms
-undifferentiated product
-no barries to entry or exit
-price takers (cant set price)
- all actors know the transaction

Time horizion and DM impact on cost information

Consolidate the above

Question 3

how the different marginal cost situations (i.e. in the short term and in the long term) influence ?
how a company sees cost information ?
how they make appropriate pricing decisions to maximise profits?