Can you please give me short 5 intelligent questions about this topic to ask to
ID: 1116506 • Letter: C
Question
Can you please give me short 5 intelligent questions about this topic to ask to the presenter?
Pricing Practices
Cost-Plus Pricing
Cost-plus pricing is a cost based method for setting the prices of goods and services. Under
this approach, the direct material costs, direct labor costs, and overhead costs are added
together. Then, a markup percentage is added (to create a profit margin) in order to derive
the price of the product.
Advantages:
Requires less information and less
precise data than the rule of setting
price at the output level MR=MC.
Easy and simple, but it is difficult to
determine variable and overhead
costs.
Usually results in relatively stable prices
when costs do not vary much over
time.
Can provide a clear justification for
price increases when costs rise.
Criticisms:
Based on accounting and historical
costs instead of replacement and
opportunity costs.
Based on average, rather than
marginal, cost of production.
Ignores conditions of demand
Peak-Load Pricing
Peak-load pricing refers to the charging of a higher price for a good or service during
peak times than at off-peak times.
Example: The price of electricity in the summer versus the spring. In order to satisfy
peak demand, electric power companies must use older and less efficient
equipment. This causes higher marginal costs for the company and higher
consumption costs for the consumers.
Two-Part Tariff
Two-part tariff refers to the pricing practice in which consumers pay an initial fee for
the right to purchase a product or service, as well as a usage fee or price for each
unit of the product they purchase.
Oligopolies and monopolistic firms use this pricing practice sometimes to increase
profits.
Example: Country clubs. Golf courses charge a membership fee and then an
additional fee for every round played.
Tying
Tying refers to the requirement that a consumer who buys or leases a product also
purchases another product needed in the use of the first.
Sometimes the tying of purchases is done to ensure that the correct supplies are used
for the equipment to function properly or to ensure high quality.
Often, it is used as a form of two-part tariff to earn higher profits.
Example: In the 1950’s, when Xerox was the only company making copiers, it required
businesses to also purchase Xerox paper. The courts eventually ordered this practice
unfair.
Bundling is a common form of tying in which the firm requires customers buying or
leasing one its products or services to also buy or lease another product or service
when customers have different tastes but the firm cannot price discriminate.
Prestige Pricing
Prestige pricing refers to deliberately setting high prices to attract prestige-oriented
consumers.
Consumers often pay high prices for some goods when very similar, much cheaper
substitutes exist because they equate price with quality.
This happens when it is difficult to determine objective opinions on the quality of a
product.
Companies have recognized this and now sometimes package the same product
differently - one to appear of higher quality than another - and sell the first at a much
higher price.
Price Lining
Price lining refers to the setting of a price target by a firm and then developing a
product that would allow the firm to maximize total profits at that price.
Instead of deciding first on the type of product to produce and then on the price to
charge, the order is reversed
Example: GM’s Cadillac line of automobiles sells at the highest price range and
appeals to the wealthiest and most quality-conscious customers. GM also sells the
Buick line of midsized automobiles at a lower price range to consumers of average
income. Finally, GM has the compact-car line, which sells at the lowest price range.
GM competes with Ford, Chrysler, and imports. Trying to increase the quality and
price of Buicks would not be profitable because consumers have grown to view
Buicks as being midrange quality and price.
Skimming
Skimming refers to the setting of a high price when a product is introduced and
gradually lowering its price.
The reason and rationale for this are that it is often difficult to determine exactly the
strength of demand when a product is introduced, and therefore, the best price to
charge.
Starting with a high price allows the firm to sell the product to those consumers who
are willing to pay the high price. The firm then lowers the price, both to increase sales
and to discourage entrants if the initial high price leads to large profits.
This occurs most often in durable goods such as refrigerators, washing machines, and
personal computers.
Price Matching
Price matching is the pricing strategy in which a firm advertises a price for its product
or service and promise to match any lower price offered by a competitor.
Price matching allows a firm to sell at a higher price because it sounds like a good
deal to consumers (who may feel that there is no need to search for a better price)
and because it also discourages competitors for undercutting any given rival’s price.
Price matching is becoming popular among car dealers, office supply stores,
electronic stores, and other retailers.
Value Pricing
Value pricing refers to the selling of quality goods at much lower prices than
previously. This is old-fashioned price cutting, but with manufacturers redesigning the
product to keep or enhance quality while lowering costs so as to still earn a profit.
It is offering more for a lot less.
Value pricing is likely to spread as companies cater to increasingly sophisticated
bargain-conscious consumers.
Example: Taco Bell saw its fourth quarter 1990 sales jump 15% after implementing a
value menu with $0.59 tacos and 14 other items for either $0.59 or $0.79. This forced
McDonald’s and Wendy’s to respond with their own value menus.
Value Pricing in Car Buying
During the past decade, General Motors moved toward no-haggling value pricing for
some of its cars.
One-price selling was first instituted at GM’s Saturn division in 1990. GM moved to
value pricing for some of its cars with the 1994 model year.
This involved the selling of well-equipped 1994 cars at lower prices than similar 1993
models. The hope was to increase market share and profits.
GM saw boosted sales, but profit margins fell.
Ford also started experimenting with one-price selling and started to phase in a
negotiation free process.
Many consumers now use online price comparison sites, such as AutoTrader,
Edmunds, and eBay, to find the best deal.
These sites usually charge a small fee for passing sales leads from potential customers
to dealers.
In 2011, TrueCar.com started running TV commercials showing what other car buyers
paid for a particular car and promising to deliver a guaranteed price from several
dealers, thus eliminating the need for any haggling.
TrueCar charges dealers $300 when its information leads to a sale and makes sure
that the dealer honors their quotes.
The dealers’ fear was that customers could take the offer elsewhere and use it to
negotiate a better price.
Many consumers now use online price comparison sites, such as AutoTrader,
Edmunds, and eBay, to find the best deal.
These sites usually charge a small fee for passing sales leads from potential customers
to dealers.
In 2011, TrueCar.com started running TV commercials showing what other car buyers
paid for a particular car and promising to deliver a guaranteed price from several
dealers, thus eliminating the need for any haggling.
TrueCar charges dealers $300 when its information leads to a sale and makes sure
that the dealer honors their quotes.
The dealers’ fear was that customers could take the offer elsewhere and use it to
negotiate a better price.
Explanation / Answer
1)What are the various approaches for price determination?
2)What are the various demand-oriented approaches for price determination?
3)What are the various cost-oriented approaches for price determination?
4)What are the various competition-oriented approaches for price determination?
5)What are the various profit-oriented approaches for price determination?