Factors Affecting Price Determination

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Questions and Answers

In discriminatory pricing, what factor is NOT considered when setting different prices?

Differences in consumer income

Differences in product quality

Differences in cost of production (correct)

Differences in location

What is the purpose of Cebu Pacific's 'piso fare' seat sales?

To maintain high ticket prices year-round

To attract customers during off-peak seasons (correct)

To encourage ticket purchases during peak travel times

To reduce the overall cost of air travel

What is a common example of psychological pricing?

Offering a flat rate for all customers regardless of age

A haircut priced at $499 rather than $500 (correct)

Discounting a service during a specific season

A product sold for $20 instead of $19.99

What is the main objective of promotional pricing?

To provide incentives during product introductions or special events Signup and view all the answers

How do buffet restaurants typically implement discriminatory pricing?

By having different rates based on customer categories such as seniors and kids Signup and view all the answers

What is the primary goal of Market Penetration Pricing?

To quickly gain market share by attracting many buyers Signup and view all the answers

What is an example of Product Bundling Pricing?

A resort combining activities at a lower price than buying them separately Signup and view all the answers

How do volume discounts typically attract customers?

By incentivizing frequent purchases with discounts Signup and view all the answers

What pricing strategy addresses seasonality in the tourism market?

Discounts Based on Time of Purchase Signup and view all the answers

Which of the following is a characteristic of diving tourism in the Philippines?

Prices have decreased due to increased competition Signup and view all the answers

Which pricing approach focuses on competitive positioning within the tourism market?

Market Penetration Pricing Signup and view all the answers

What is a potential customer misconception about discounts based on time of purchase?

They may offer better rates if purchased in advance Signup and view all the answers

What strategy is exemplified by hotels offering a free room for every ten booked?

Volume Discounts Signup and view all the answers

What is considered the most important factor affecting the price of a product?

Cost of the product Signup and view all the answers

How does demand for a product typically relate to its price?

Lower prices lead to higher demand Signup and view all the answers

What pricing strategy is characterized by setting high prices to target an elite customer base?

Prestige pricing Signup and view all the answers

Which of the following factors does NOT influence price determination?

The location of the product Signup and view all the answers

What is the upper limit of the price range determined by?

Consumer utility and demand Signup and view all the answers

Market skimming pricing is most effective in which of the following scenarios?

When demand is high and supply is low Signup and view all the answers

Which pricing strategy aims to capture a specific segment of the market by positioning a product as high-end?

Prestige pricing Signup and view all the answers

What is one of the roles of government regulation in price determination?

Protecting consumers from unfair pricing practices Signup and view all the answers

Study Notes

Factors Affecting Price Determination

Cost of the Product: The most important factor when setting a price. Includes cost of production, distribution, selling, and promotion. It acts as a benchmark for pricing.
Demand for the Product: The upper limit of price range depends on the product's utility and demand in the market. The law of demand dictates that lower price equals higher demand.
Price of Competitors: Pricing strategies, product features, distribution channels, and promotional efforts of competitors must be considered.
Government Regulation: Protects citizens from unfair pricing practices. May impose laws and regulations on pricing for essential goods.

Pricing Strategies

Prestige Pricing: Used for luxurious products and services to project exclusivity and attract a high-end clientele, often targeting Class A markets. Example: El Nido Resorts in the Philippines.
Market Skimming Pricing: Used when the market is price-insensitive, meaning high demand and low supply. Aims for high profit margins. Example: Early diving businesses in the Philippines.
Market Penetration Pricing: Sets a low initial price to quickly penetrate the market, attract buyers, and gain market share. Example: Paradise Island & Beach Resort in Samal Island, Davao compared to Pearl Farm Resort.
Product Bundling Pricing: Offers a discounted price for a package of products or services. Attracts buyers due to the cost savings compared to purchasing items individually. Example: Club Punta Fuego in Batangas summer promos.
Volume Discounts: Rewards high-volume or frequent users. Attracts larger purchases or long-term partnerships. Example: Hotels offering free rooms for bookings of 10 or more rooms.
Discounts Based on Time of Purchase: Reduces prices during off-season or if purchased in advance. Aims to attract buyers during periods of lower demand. Example: Cebu Pacific 'piso fare' seat sales.
Discriminatory Pricing: Offers different prices based on factors other than cost, often to maximize revenue per customer. Example: Buffet restaurants charging different rates for seniors, children, and adults.
Psychological Pricing: Sets prices slightly lower than a whole number, creating the perception of a lower price. Example: Hair salons charging 499 instead of 500 for a haircut.
Promotional Pricing: Offers discounts or incentives for a limited time, especially during product introductions or special events. Example: A newly opened restaurant offering free dessert to their first 100 customers.

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Description

Explore the various elements influencing price setting, including cost of production, demand, competitor pricing, and government regulations. This quiz examines key pricing strategies such as prestige pricing and market skimming. Test your understanding of how these factors shape market dynamics.