Question

1. What are the various pricing structures in the industry, what are the risks? 2. When does one use a particular pricing structure? 3. Compare various pricing structures. 4. How do the parties get paid? 5. What do these parties get paid? 6. How are the costs of a project divided by percentage?

Answer 1

solution -

1. industries uses different pricing structures to achieve their overall goals.the goals differ from industry to industry.various pricing objectives (structures) are as follows:

Competitive pricing- risk or disadvantage

• it is difficult to implement for the companies with smaller revenues
• you need resources to implement it (tools, money, staff)

Prestige pricing-risk or disadvantage

it loses out on majority of consumers as 99 percent of population are price conscious and if company is following premium pricing than it is making product only for 1 percent of population and when the company has left 99 percent of population than scope of sales is very limited. eg. Rolex watch is not used by everyone.

Profitability pricing-

You have to monitor price and volume of sales carefully, as setting the price too high will reduce sales volume, resulting in lower profits. If you have a large market share, this is a viable option. It can be argued that oil exporting countries use this technique.

Volume pricing -

The main disadvantage to offering a quantity discount is that the discount offer reduces the profit per unit, also known as the marginal profit.

2.Competitive pricing is just matching the price of your product with the price set by the industry leader. Since prices will be about the same, you will focus on other product attributes to differentiate your product, such as quality and customer service.

Prestige pricing involves pricing your product high so that only wealthier customers can afford it. You attempt to use the high price and limited availability to enhance your product's image, causing the product to be viewed as a status symbol. A classic prestige product is a Rolex watch or Bentley.

Profitability pricing is designed to maximize your profit. The formula to achieve this is profits = revenue - expenses (P = R - E). You have to monitor price and volume of sales carefully, as setting the price too high will reduce sales volume, resulting in lower profits. If you have a large market share, this is a viable option. It can be argued that oil exporting countries use this technique.

Volume pricing is when you forgo the highest price possible in exchange for sales volume with a particular customer. You anticipate that increases in sales volume will more than make up for the lower profit margins. Volume purchases also increase customer loyalty and reinforce your name, as the product is used longer. Volume pricing is common in industrial transactions. For example, you may order tens of thousands of screws at a deep discount or order hundreds of tons of refined iron to

3.

1.Economic Value: -Relevant mainly for industrial buyers, customers will consider the costs beyond the purchase price. -Although the buying price is higher than others, the overall cost is lower. -For example, costs associated with installation, maintenance, and training.

2.Going-rate pricing: -Setting price largely based on following the competitors price (ignore demand and costs) -the company might charge the same, more or less, as its main competitors. -smaller firms change their price when the market leaders change the prices. -where competition is limited

3.Sealed-bid pricing: -Setting price based on how the firm thinks competitors will price rather than demand/costs. -Common within the building industry. -Company have to set price lower than other companies to win the contracts. -using expected profit as a basis for setting price .