Daryll John O.

Bacayo
BSBA 301

Activity

Exercise 1
Directions: In no more than three (3) sentences, identify if the given item is a factor associated
with price theory or an underlying assumption of prospect theory and explain its concept. Write
your answers in the space provided. (6 items x 5 points)
1. Demand
2. Moon prices
3. Equilibrium
4. Supply
5. Free or paid
6. Better to pay in cash

Answers:
1. Demand
- According to the price theory, demand is related. It seeks to establish an equilibrium in
which the quantities of commodities or services produced correspond to the market's
desires and people's purchasing power. It refers to the desire of the market to buy a tangible
or immaterial thing. Only a limited amount of potential customers available at any given
moment. Demand may change based on a variety of reasons, such as if an improved product
is available. If a newer version of a product is available, or if a service is no longer required.

2. Moon Prices
- Prospect theory's fundamental principle is related with moon pricing. It was said there that
losses and profits are evaluated differently, and that people make decisions based on
perceived gains rather than actual losses. Under moon pricing, it is also said that the refund
gives clients with additional positive utility. Because of the discount, customers may
provide great comments while keeping the rest below their budget.

3. Equilibrium
- Price theory also encompasses equilibrium. It refers to the price point at which supply can
adequately satisfy potential customers. Customers may abandon the item or service if the
price is excessively high, resulting in an overcapacity. In contrast, if a price is set too low,
demand may much overshadow available supply. Any change in supply or demand causes
a price change, resulting in a shift in price equilibrium and the achievement of a mutually
beneficial price point for both the supplier and the buyers.
4. Supply
- The supply is one of the aspects that determines price theory. It determines the value of an
item or service based on demand and supply, which is addressed by the pricing theory
principle. The amount of items or services that the market can deliver is referred to as
supply. It contains intangible commodities such as the capacity to schedule an appointment
with a qualified service provider are examples of tangible goods.

5. Free or paid
- One of the main assumptions of prospect theory is whether something is free or paid.
Individuals make decisions based on perceived advantages rather than perceived costs,
with two equal alternatives provided to a customer. One is given in terms of prospective
benefits, while the other is offered in terms of potential losses. When a product or service
is paid for directly by a consumer, the negative utility is bigger, which is more likely to be
positive with consumers who made an effort merely to receive what they desire.

6. Better to pay in cash

- Another example of prospect theory's underlying assumptions is that it is better to pay with
cash. A cash payment has a higher negative utility than a cashless or credit/debit card
payment. According to the report, customers who wish to keep track of their spending
avoid using credit cards. Paying the price to buy a commodity or service provides negative
utility, according to the prospect theory, purchase and usage of a product or service, on the
other hand, indicate a gain and build positive utility.

Exercise 2
Directions: List down four (4) pricing strategies and explain the concept of each in no
more than three (3) sentences. Write your answers in the space provided. (4 items x 5
points)

1. Price Skimming

- When you utilize a price skimming approach, you debut a new product or service at a high
price point before gradually decreasing your prices. This is an excellent strategy for
attracting clients, particularly high-income buyers who consider themselves early
adopters/trendsetters. Price skimming may be incredibly beneficial in accelerating your
break-even point. This technique gives enough security.

2. Pricing for market penetration

- Price skimming is the polar opposite of a penetration pricing approach. Rather than
beginning with high pricing, you begin with low prices and gradually increase them as they
acquire popularity. Penetration pricing is intended to draw attention to your brand. As a
result, your pricing will always start lower than your competitors'. Once you've effectively
achieved market penetration, you may raise your pricing to a comparable or even greater
level.
 3. Value Pricing
- Might be the most essential pricing approach. This considers how valuable, high-quality,
and significant your consumers consider your items or services to be. Value pricing is what
makes a bridal gown worth thousands more than a prom gown and why high-end salon
haircuts are more expensive than Great Clips services.

4. Psychology Pricing
- The figures you see might have a greater impact on you than you realize. Psychological
pricing, as opposed to modifying customer views of a product, seeks to influence
perceptions of what the price is in the first place. It refers to the strategies used by marketers
to persuade clients to buy a product or service on emotional rather than rational grounds.