Question

1. What are the five major categories of pricing strategies? Give at least two examples of specific strategies that fall into each category.

2. Identify and describe the main types of discounts that are used in the pricing of business products.

3. Under what conditions would a firm be most likely to use non-price competition?

4. For what types of products are psychological pricing strategies most likely to be used?

Answer 1

What are the five major categories of pricing strategies? Give at least two examples of specific strategies that fall into each category.

Answer: A good pricing strategy helps the business to sell more, expand and earn a profit. Therefore it is very important for a business to consider a wide range of factors before offering the products and services at a price. This includes production cost, distribution cost, marketing cost etc. If the price of a product is set too high the customers won't purchase and if it is set too low than then the earnings do not cover up all the cost of business like promotion cost, production cost and this may affect the business. Therefore a business should have a pricing strategy. Here are some of the important strategies of business which helps in setting the price of the products and services.

1. Pricing at a Premium: Premium pricing is a strategy when the business charges high pricing for a product. Premium pricing is effective when the product or service is at the early stage of a product lifecycle. Example: Samsung Galaxy Fold, Huawei Mate X was launched which are the first foldable phones of 2019. Since these are the first of its kind the price is quite high.
2. Pricing for market Penetration: In this kind of pricing strategy the price of a product and services are offered at a low cost. This strategy is also used to draw the attention of the customers, in this pricing strategy the business initially does not earn much profit but it has a long term influence on the business.
3. Economy Pricing: In this type of pricing strategy the price of the products are low and is mostly used by discount retailers. For example, Walmart and Target use this kind of pricing strategy.
4. Price skimming: In this type of pricing strategy the price of the products are st high during the introductory phase but as time passes by and the competitor goods appear in the market.
5. Psychology Pricing: In this type of pricing strategy the price of a product or services is set to such that the price intimidates the customer to buy the products. For example, the price of a T-Shirt is set to $99 instead of $200.

Identify and describe the main types of discounts that are used in the pricing of business products.

Answer: The main types of discounts are as follows :

1. Quantity Discount: In this type of discounts the discount is allowed when the seller or buyer purchases in volume.
2. Trade Discounts: In this type of discounts the discount is allowed to the middlemen when the products are sold or distributed.
3. Promotional Discounts: this type of discount is allowed on the products to promote the products.  
4. Seasonal Discounts: This type of discount is allowed to the products or services on a special season like the prices of products in the festive season,
5. Cash discounts: This type of discounts is rewarded to the customer when the products are purchased in a certain period of time.  

Under what conditions would a firm be most likely to use non-price competition?

Answer: A firm is most likely to use non-pricing competition under the following condition,

• when a company focuses on benefits
• when a company focuses on extra services
• when the company focuses on good product quality

For what types of products are psychological pricing strategies most likely to be used?

Answer: Psychological pricing strategies are used on the products when the company decides to

• target a large audience
• when it wants to encourage impulse buyers.
• when the company encourages large purchases
• when rounding up the price on a product is needed.

This strategy is not subject to any specific product line.

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