Pricing/ Chapter 12

Question 1

what does the demand curve show?

Answer 1

an inverse relationship between price and quantity. The lower the price, the lower the quality.

Question 2

what is the role of pricing?

Answer 2

• key element of marketing mix
• directly affects how much revenue is generated.
• pricing impact significantly on perception’s of brand’s positioning
• price makes or beaks the business model and is hugely important to the consumer because: a higher than average price can convey an image of prestige. A lower than average price may connote good value

Question 3

what are advantages of full cost pricing ?

Answer 3

• gives an indication of minimum price needed to make a profit.
• can be used with other methods - acts as a constraint

Question 4

what are the disadvantages of full cost pricing?

Answer 4

• takes no account of customers willingness to pay
• if followed strictly, leads to an increase in price when demand falls.
• is illogical because a sales estimate is made before a price is set

Question 5

what are the advantages of direct cost pricing?

Answer 5

• avoids problems of allocating overheads.
• avoids ‘price up as demand down’ problem
• indicates lowest price at which it is sensible to take business

Question 6

what are the criticisms of direct cost pricing?

Answer 6

• when business is buoyant, gives no indication of optimum price
• cannot be used in the long term

Question 7

what is going-rate pricing

Answer 7

with no product differentiation and the industry level, producers are forced to accept the going rate. In reality, there is almost no situation where no differentiation occurs

Question 8

what is competitive bidding?

Answer 8

• where the supplier will price according to specification drawn up by the purchaser. Usually the supplier will choose the lowest price tendered (most competitive)

Question 9

what elements contribute to price setting?

Answer 9

• value
• variable
• variety-prices can be set at different levels across multiple products and services to achieve different objectives for positioning and contribution
• visible/invisible- price can be open of confusing
• virtual - price change is the easiest and quickest decision to make

Question 10

what influences price objectives?

Answer 10

• profit maximisation- additional revenue gained by increasing the price of a product equals the increase in total costs
• target-return objectives
• market share objectives

Question 11

which price points does high price segments provide?

Answer 11

• high value
• customers have ability to pay
• lack of competition
• excess demand
• high pressure to buy

Question 12

why would you use short-run price models?

Answer 12

• to support a company’s image
• to avoid customer and political criticism
• to penetrate and preempt the market for a product by changing a low price