22 Questions
What is the primary consideration for a business organisation when setting prices for its products or services?
The value perception of the customer in terms of the benefits offered
Which of the following is a characteristic of a price maker?
Influence on the decision about the prices they charge
What is the primary purpose of the Price Discrimination Regulations and Buyer Power Regulations 2018?
To protect consumers from price discrimination
What is the key consideration for a business organisation when setting prices for a target market?
The important criteria that customers consider when making a purchasing decision
What is the term for the practice of creating the impression that consumers are receiving a bargain when it is not the case?
Deceptive pricing
What is the primary purpose of the Competition Act 89 of 1998?
To promote fair competition among businesses
What is the primary goal of using frenzy pricing?
To create a sense of urgency and excitement in the target market
What is the difference between a price maker and a price taker?
A price maker sets prices based on their own costs, while a price taker sets prices based on competitors' prices
What is the purpose of determining demand in the pricing process?
To determine the optimal price for the product
What is the main advantage of using a two-part pricing structure?
It allows for price discrimination
What is the difference between pure bundling and mixed bundling?
Pure bundling offers a single price for multiple products, while mixed bundling offers different prices for each product
What is the first step in the process of setting a price?
Select the pricing objective
What is the main disadvantage of using going-rate pricing?
It does not consider the costs of production
What is the purpose of estimating costs in the pricing process?
To determine the cost structure
What is the primary goal of a profit-oriented pricing objective?
To achieve the highest possible profits
What is the main characteristic of a market-skimming pricing strategy?
Setting a high introductory price to attract a customer base with a prominent desire for the product
What is the primary objective of a market penetration pricing strategy?
To attract a large customer base by setting low prices
What is the main difference between a price maker and a price taker?
A price maker has the ability to influence the market price, while a price taker has to accept the market price
What is the illegal practice of pricing referred to in the text?
Predatory pricing
What is the primary consideration when using a demand-plus pricing strategy?
The value that consumers seek in the product
What is the purpose of conducting break-even analysis in pricing?
To determine the point at which the product becomes profitable
What is the primary focus of target pricing?
The return on investment
Study Notes
Pricing Strategies
- Consumer surplus: the extra need-satisfaction consumers get
- Price takers: no influence on pricing decisions, influenced by external factors (e.g. government-set prices for petrol)
- Price makers: have control over pricing decisions (e.g. a cafeteria setting prices for products)
Price Setting Guidelines
- Consider the benefits customers receive from the product/service
- Consider important criteria customers consider when making purchasing decisions (e.g. quality, branding, convenience)
- Consider the value perception of customers
- Research competitors' offerings
- Consider prevailing economic conditions
Legal Considerations
- Price Discrimination Regulations and Buyer Power Regulations 2018
- Competition Amendment Bill 2018
- Competition Act 89 of 1998
Ethical Issues
- Price fixing: consent amongst competitors on price increases/decreases
- Price discrimination: charging different prices for the same product (e.g. student discounts)
- Deceptive pricing: creating the impression of a bargain when it's not the case
- Chain-mark-up pricing: pricing based on the markup each organisation sets in the production chain
Competitive Pricing Strategies
- Going-rate pricing: basing prices on competitors' prices
- Leadership pricing: setting prices that other organisations follow
Dynamic Pricing Strategies
- Exchanges over the internet: sellers market products/services, and buyers bid on them
- Alternative: buyers request a product/service, and sellers send bids
Advanced Pricing Strategies
- Volume discount pricing: pricing per amount of goods purchased
- Two-part pricing structure: set price for the first purchase, and linked changeable price for subsequent purchases
- Bundle pricing: pure bundling (pricing based on packaging/extra features) and mixed bundling (mix of pricing schemes)
Frenzy Pricing
- Creating over-demand by offering very low prices to create excitement among consumers
The Process of Setting a Price
- Select the pricing objective
- Determine demand
- Estimate costs (variable and fixed, differential cost in differential markets, target costing)
- Analyse costs, prices, and competitors' reactions
- Select the most appropriate pricing method
- Select the final price
Pricing Objectives
- Profit-oriented goals: targeting ROI, maximising profits
- Sales-oriented goals: selling more products, increasing market share
- Stability-oriented goals: stabilising prices in the industry, meeting competition
Pricing Strategies for New Products
- Market-skimming pricing strategy: high introductory price to attract high-end customers, then reducing prices to attract new segments
- Market penetration pricing strategy: setting low prices to attract customers when introducing a new product/service
This quiz covers the concept of consumer surplus, price takers, and price makers in microeconomics, including factors that influence price setting.
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