Lecture 8 Pricing

Question 1

What is price and whta’s the goal firms have?

Answer 1

price is amount charged for a product or service. It’s how firms capture value from consumers. Goal is to maximize long term profits

Question 2

What are three real world examples of pricing?

Answer 2

1. Gasoline prices 2000-2013: prices increased due to supply, demand global prices
2. COca-cola smart vending machines: prices go up when temperture hot outisde
3. Lipitor: dooped prices 75-80% after generic competiton entered the market

Question 3

What are key factors in pricing decisions?

Answer 3

1. Costs: what it costs to make the product
2. Customer perceived value: willigness to pay
3. Competitors: what other are charging

Question 4

What is price discrimination and types of price discrimination and give example for each?

Answer 4

Price discrimination: setting different prices for same product based on behaviors and segmentation. Two types are:
1. Perfect price discrmination (rare): consumers pay their maximum willlgness to pay.
- Auctions (ebay and art sales)
- Flea Market
- Airline Ticket Pricing (booking early vs late)
2. Screening (more common): setting different prices base on consumer groups and coharateriustics:
- Coupons (price senstive conumers will redeem)
- Student/senior pricing
- Airline ticket pricing (booking early vs. late)

Question 5

What’s a real world examplke of PD?

Answer 5

Air canda/ hidden city ticketing
- it;s cheaoer to go houston to toawa via toronto than houston to ottawa. People go longer rouye as it’s cheaper. Skipplagged.com helps finds these cheaper routes

Question 6

What are disclaimers of hidden city ticketing?

Answer 6

1. Only works for one way tickets
2. Pack everything on carry on as checked bags may get lost
3. Re-royte to different airpost not paid

Question 7

What are two examples of showrooming and price matching?

Answer 7

1. Best buy vs. Amazon: people used to go see products at best buy and than buy cheaer at amazon to combat showrooming best buy introduced price matching in 2014 as they had decline in sales before that.
2. Lowe’s vs. Home depot: lowe’s will match price and beat 10% compared to home depot

Question 8

What are new product pricing strategies a`nd draw table on iPad of their strategies

Answer 8

Two types of new product pricing strategies are:
1. Price Skimming: high prices initially and reduces overtime. Used to capture maximum WTP early on. Goal: is intertemporal price discrimination. common in tech products, products bought once or rarely.

2. Penetration pricing: low prices intitally and rise overtime. used to gain market adoption and deter competitors. Common in product bought frequently (Megabus $1-$10 tickets), high completion markets