Pricing

Question 1

Name and explain the two alternative new-product pricing strategies, give example of a company that have used this strategies

Answer 1

1. Market-skimming pricing - setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price. Apple use this strategy when releasing a new product
2. Market-penetration pricing - setting a low price for a new product in order to attract a large number of buyers and a large market share. Huawei uses this with their androids

Question 2

Define the concept of value-based pricing

Answer 2

The basis of the customer’s perception of value rather than the seller’s cost

Question 3

Name and explain two alternative types of value-based pricing

Answer 3

1. Good-value pricing: offering the right combination of quality and good service at a fair price. Airlines such as SAS have introduced premium economy classes named Plus
2. Value-added pricing: attaching value-added features and services to differentiate a company’s offers and thus support higher prices and increase the company’s pricing powers. Royal Talens use this strategy with their oil paint

Question 4

Name and briefly explain seven price-adjustment strategies

Answer 4

1. Discount pricing: A straight reduction in price on purchases during a stated period of time. For example Ica uses this.
2. Allowance pricing: Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturers products in some way. Felix ketchup can pay Ica to have their product in eye sight at the store.
3. Segmented pricing: Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.
4. Psychological pricing: A pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product. Designer clothing-brands, Apple, Tesla
5. Geographical pricing: Setting prices for customers located in different parts of the country or world, Ikea does this
6. Dynamic pricing: Adjusting the prices continually to meet the characteristics and needs of individual customers and situations.
7. International pricing: Companies that market their products internationally must decide what prices to charge in the different countries in which they operate.

Question 5

Name and explain two alternative types of cost-based pricing

Answer 5

Cost-based pricing: setting price based on the cost of producing, distributing and selling the product plus a fair rate of return for effort and risk, Ryanair

2. 1 Cost-plus pricing: adding a standard mark-up to the cost of a product, Lawyers,
3. 2 Breaking-even pricing: setting price to break-even on the costs, or to make a target profit. Car manufactures

Question 6

Define and explain the market exchange

Answer 6

When two parties voluntarily agree to exchange goods/services for money/other goods