Pricing Policy

Question 1

Definition of pricing policy

Answer 1

Monetary value of a product that a consumer is prepared to pay

Question 2

Importance of pricing policy

Answer 2

• has a decisive influence on your profits
• establishes your position in relation to your competitors
• establishes the target market
• regulates demand

Question 3

What objective may a manufacturer have when determining prices

Answer 3

• to increase market share
• to maintain market share
• to eliminate competition
• to maximise profits and increase profitability

Question 4

Factors influencing price

Answer 4

• form of market
• nature of demand
• availability of substitute goods
• fixed prices of products
• behaviour of consumer
• attitude of dealers
• production and distribution costs

Question 5

Form of market

Answer 5

Perfect competition: characterised by large number of buyers and sellers where price is determines by supply and demand
Monopolistic: one seller that dominates the market
Oligopoly: Few sellers, each insist on their own price
Monopoly: Only one seller who can insist on their price

Question 6

Pricing techniques: how a marketer determines prices of products

Answer 6

• cost based pricing: cost price of product is used as basis for determining selling price
• demand based pricing: the consumer’s willingness to pay a certain price
• competition based pricing: the markeer will look at the ruling market price (what competitors charge) as an indicator of the price
• combination pricing: combination of techniques
• price discrimination: different prices are charged to different consumers (example, cash vs credit)

Question 7

Pricing techniques for consumers

Answer 7

• Psychological pricing: odd-even pricing used by businesses to make it seem goods are cheaper
• Perceived value pricing: perceived value pricing is not based on the cost of the product, it is the value which the customer thinks they are deriving from a product or service
• Promotional pricing: used during sales
• Penetration pricing: where the price is initially set low to rapidly reach a wide fraction of the market
• Bait pricing: illegal practise. “Baiting” customers with unrealistically low prices to bring them into the store
• Loss leaders: goods/services offered at high discounts in order to attract new customers to the store