1. What might make it difficult to determine the prices of one’s competitors?

When such difficulties occur, what could be done to surmount them?

It might be more difficult to determine the prices of the competitor if the
competitor does not show its prices publicly. Some companies do this because
the business consists of a bidding process or because it consists of personal
negotiations between the buyer and seller. In these situations, the company can
get estimated prices from what the customers have commented about
competitor’s prices. A lot of times, information about competitors are added to
get a closer estimation to the competitor’s prices, such as costs, strategies, and
profit levels.

2. If an item is particularly valuable to a customer, using customer-based pricing

might suggest a price that is higher than the one that would be indicated by use
of a standard markup. Describe a situation where the use of customer-based

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pricing would suggest a price that is lower than the one that would be indicated

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by use of a standard markup.

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3. You are the manager of a successful gift shop. After a meeting with her
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accountant, the owner of the shop has told you that the shop’s cost of goods
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sold should be about 30 percent of total sales revenue and that the price of each
of the items that the shop sells should be in line with this.
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a) Based on the owner’s instructions, give the price you would set for the
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following items. Show the formula(s) you used in your calculations:

Item A per-item cost: $26.00

26*(100/30)=$86.67
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Item B per-item cost: $9.25

9.25*(100/30)=$30.83
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Item C per-item cost: $103.60

103.60*(100/30)=$345.33
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b) Is the owner using cost-based, competition-based, or customer-based

pricing? What are the pros and cons of the owner’s pricing procedure?
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The owner is using cost based-pricing because the price setting calculation
is based on the cost of each item. The pros of using this pricing procedure
are that it is easier to calculate and reduces the need of research on
competitor’s prices. The cons of the owner’s pricing procedure is that it is
not useful in efforts of maximizing total profits.

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 c)

(a) Based on the owner’s instructions, give the price you would set for the
following items. Show the formula(s) you used in your calculations:

Item A per-item cost: $26.00

26*(100/30)=$86.67

Item B per-item cost: $9.25

9.25*(100/30)=$30.83

Item C per-item cost: $103.60

103.60*(100/30)=$345.33

(b Is the owner using cost-based, competition-based, or customer-

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) based pricing? What are the pros and cons of the owner’s pricing

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procedure?

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The owner is using cost based-pricing because the price setting

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calculation is based on the cost of each item. The pros of using this
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pricing procedure are that it is easier to calculate and reduces the
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need of research on competitor’s prices. The cons of the owner’s
pricing procedure is that it is not useful in efforts of maximizing
total profits.
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vi y re

4. The manager of a local convenience store is expanding his line of small toy items.
To price these new items, the manager is looking at the prices being charged by
competing retailers in his area. For the popular “Titan Joe Action Figure,” he has
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observed the following prices:

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Downtown department store: $14.00

Chain drug store:$11.99
Well-known local variety store:$10.99
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Large discount department store:$9.87

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Discount toy store:$9.55

If the manager is inclined to use parity pricing, what price should he set for the Titan
Joe Action Figure? Explain your reasoning.
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