Question

What is the biggest disadvantage of $1 per $1,000 approach in product pricing?

Group of answer choices

This approach does not consider the changing effects of the economy, market, and competition.

This approach does not examine the current trends of customer base in the markets.

This approach restricts the availability of discounted rates and limits business that is unlikely to produce high profits.

All of the above.

Answer 1

The answer is “all of the above”.

This is because the $1 per $1,000 approach works as a rule of thumb and hence does not provide pricing flexibility even when the demand conditions and macro and micro economic conditions changes. Also availability of discounted rates is also limited due to this.

Suppose there is a 300 room hotel that costs $30 million to build (or $100,000 per room). Now using the $1 per $1,000 approach the price per night of a room = $100,000/$1,000 = $100 per room per night. This method does not consider profits, other costs as well as other factors.