Module 5

Question 1

(3) Pricing strategy:

Answer 1

Add-ons
Accessories
Complementary products

Question 2

Something as an option or accessory, that can be added to enhance the performance, or appearance.

Answer 2

Add-ons

Question 3

Are items of equipment that are not usually essential, but which can be used with or added to something else in order to make it efficient, useful, or decorative.

Answer 3

Accessories

Question 4

Refers to a good or service used in conjunction with another good or service.

Answer 4

Complementary

Question 5

In this structure distinct products are priced and sold individually.

Answer 5

Add-ons structure

Question 6

Is a default approach for most products, and the approach is relatively unlimited in its application.

Answer 6

Add-ons structure

Question 7

Other products may be independent complements, wherein the purchase of any one product increases the likelihood of the purchase of any other complementary product, but each product can provide benefits independently.

Answer 7

Add-ons structure

Question 8

Notes:
Each product can stand alone, but much better if you can avail the other (combo) at the same time.

Answer 8

Independent complementary

Question 9

Each customer can select the specific features that he or she desires.

Answer 9

Add-on price structure

Question 10

CMA > CMB

When a (based product) is greater than > the (add-ons)

Ex. Tennis racket is expensive meaning its profitable.
While the tennis ball is cheap meaning low profit.

Notes:
Magandang tignan but not worth it and not practical.

Answer 10

Two-part tariff

Question 11

CMA < CMB

When an add-ons is less than < the base product

Ex. Printer less than cheap.
Ink greater than since its expensive.

Answer 11

Tying arrangement

Question 12

Notes:
Only used together.

Ex. Printer and ink

Answer 12

Tying arrangement

Question 13

A balance pricing.

Answer 13

Relatively equal margins

Question 14

CMA = CMB

The bases product and add-ons is balance.

Answer 14

Relatively equal margins

Question 15

Many customers would be asked to purchase a number of features from which they gain no benefit.

The price of single package would likely be higher than their willingness to pay.

Answer 15

Gold-plated solution

Question 16

Based product that can be sold to many user with heterogeneous demand for additional features.

Answer 16

Add-ons strategy

Question 17

Additional features can be satisfied through the purchase of add-on products and accessories at the customer discretion (freedom to decide).

Answer 17

Heterogeneous demand

Question 18

The price structures are highly flexible.

Often found to be the easiest to manage and the most effective in capturing and satisfying customer demand.

Answer 18

Add-on strategy

Question 19

(4) Consumer behavioral effects:

Answer 19

Signpost effect
The optional equipment effect
Network externalities
Lock-in effect

Question 20

Is the action of pricing the popular or frequently purchased goods at a relatively low price point in order to signal to customers that the overall prices within the store are also relatively low.

Sometimes referred to as loss-leader pricing or milk pricing.

Answer 20

Signpost effect

Question 21

Sometimes referred to as loss-leader pricing or milk pricing.

Answer 21

Signpost effect

Question 22

Exampel situation:
A customer looking to purchase a new tennis racket might first check the store’s price on a can of tennis ball.

If the tennis ball seem low-priced. The customer may assume that the tennis rackets will also be priced-low.

If tennis ball seems to be priced-high, the customer may walk out and seek out bargains elsewhere.

Answer 22

Signpost effect

Question 23

Manufacturers can couple lower-margin base models with higher-margin optional equipment. (They can lower the base price by adding high cost optional add-ons.)

If the baseline product is compared with competing offers and the ADD-ONS PRODUCT are RARELY COMPARED. (People don’t compare add-ons helping more companies make more moneY from add-ons.

This happens partly because of DIFFICULT COMPARISON EFFECT its hard for people to compare complex things (add-ons), so they make less decisions.

Answer 23

Optional equipment effect

Question 24

Is an economic concepts that describes the circumstances where the value of the product or service changes as the number of users increase or decrease.

Answer 24

Network externalities

Question 25

(2) Types of network externalities:

Answer 25

Positive network Negative network

Question 26

Also referred to as network effect.

Answer 26

Positive network

Question 27

Is when the value of a product or service increases with the rise in the number of users. A POSITIVE IMPACT of the network effect is that it encourages entrepreneurs to pursue more efficient and unique products to present to the public. Ex. Facebook, Insta

Answer 27

Positive network

Question 28

Commonly referred to as congestion.

Answer 28

Negative network

Question 29

In here as the users increase, the value of a product decreases. A POTENTIAL DOWNFALL of this is that once a company achieves and maintain critical mass, it may begin to become less efficient and innovative knowing they still have a solid consumer base. Ex. Converge, PLDT

Answer 29

Negative network

Question 30

Can lead to a aggressive pricing behavior wherein the base product is oferred at a low price, if not free, and profits are captured through the sale of complementary products. Ex. Canva, Spotify

Answer 30

Network externalities

Question 31

Complementary products can lock customers into a specific base product. If this lock-in is significant, firms can increase the margins on their base products relative to the margins that they capture with add-on or accessory products. Notes: When switching to a different product becomes hard or costly, so they stick with what already they have. Ex. People will stick to Apple products because switching to a Android would mean learning a new system or losing iCloud data.

Answer 31

Lock-in effect