Tutorial Preparation Task 5: Price

Student Learning Objectives:

 Familiarise students with the bases of pricing theory and practice.
 Facilitate a critical, reflective understanding of pricing perspectives and strategy.
 Encourage a more critical appreciation of pricing within the marketing process.
 Encourage the use of a more formal, evidence based approach to the exposition of
personal knowledge.

Student Task:

Task a: (No need to submit answers to task a). You may like to search for additional
information to help formulate your ideas and potential insights. Whilst, this is not
compulsory, it would be a useful starting point and a valuable future resource for you .

Task b: (Submission required) Complete the ‘boxed’ questions overleaf to form a basis for
this understanding.

 Submit your answers via CANVAS before the next Tutorial

with your name and student number clearly marked below.
 All weekly prep tasks must be submitted to qualify for the exam
 You will receive standardised feedback for the exam/essay style question.
 Keep these safe and use as a revision tool for the assessments.

This topic will form the basis of discussion in your next Tutorial.

Your Name : Hammad Nafis Khandwani

Matriculation Number : H00452962
Date Submitted : 11/22/2023

Price PREP TASK 5

This prep task formalises your learning by asking a series of questions relating to the exam
style question below. Provide brief answers to these questions within the boxes.

‘Discuss pricing as a vehicle for effective marketing’

Now outline answers to the following questions within the boxes:

Provide at least one definition of ‘pricing’ … ?

According to Prof. William J. Stanton, “Price is the amount of money and/or other items with
utility needed to acquire a product.

Identify and describe 4 types of pricing objective and offer an example to illustrate
each objective.
Profit Maximization: The primary goal is to maximize profits.
Example: A luxury brand like Gucci might adopt a profit maximization strategy by pricing its
products high, taking advantage of a niche market willing to pay a premium for exclusivity.
Increasing Market Share: capturing a significant amount of the market is the main goal,
even at the expense of accepting smaller profit margins.
Example: A new entrant like the Nothing Phone in the smartphone market might adopt a
market share leadership strategy by offering high-quality phones at competitive prices.
Survival: This objective is relevant when the company's survival is the main priority, such as
in difficult economic times or highly competitive environments.
Example: A small local business facing stiff competition from larger retailers might adopt a
survival pricing strategy.
Value-Based Pricing: This involves identifying pricing according with the customer's
perception of the worth of the good or service.
Example: A high-end coffee company such as Starbucks charges more than its rivals
because it places an emphasis on the beans' quality, special mixes, and the whole coffee
experience.

Draw demand curves for normal and luxury products and (briefly) explain why they
are different

The demand for normal products increases with rising consumer income and decreases with
dropping consumer income. These products are regarded as a daily necessity. People are
likely to buy more of these things as their income rises, and they may buy less of these
goods as their income falls.
Luxury goods are regarded as optional or non-essential things and are frequently linked to
higher income levels. Compared to ordinary items, the demand for luxury goods is less
susceptible to price fluctuations. When buying luxury goods, consumers are frequently more
motivated by things like quality, exclusivity, and brand prestige than by immediate cost
concerns.

Define ‘price elasticity of demand’ and write down the formula for calculating this
measure
Price elasticity of demand is a measure of how responsively the amount of a good or
service is desired in reaction to a change in price.
The formula:

Define ‘fixed’ and ‘variable’ costs and provide an example of each

Fixed Costs: These are costs that remain constant regardless of sales or manufacturing
size. Regardless of how much a business produces in terms of goods or services, these
expenses never change.
Example: For a Factory, the cost of rent is fixed. The rent is the same regardless of how
many units the company produces—1,000 or 10,000.
Variable Costs: These are costs that fluctuate in relation to the quantity of goods produced
or sold. These expenses fluctuate according to how much a business produces in terms of
goods or services.
Example: A kind of variable cost in product manufacturing is the price of raw materials. The
cost of raw materials rises as a company produces more units; costs fall in direct proportion
to a drop in production.

Identify 4 types of pricing strategy and provide examples for each

Penetration Pricing:
Example: Launching a new smartphone at a lower-than-usual price to quickly capture a
significant market share.
Skimming Pricing:
Example: Introducing a new gaming console with cutting-edge features at a premium price
and later reducing the price to attract a broader customer base.
Value-Based Pricing:
Example: Luxury brands set prices for products based on perceived value, considering
factors such as prestige and exclusivity.
Dynamic Pricing:
Example: Airlines adjusting plane ticket prices in real-time based on factors like demand,
day of the week, holidays, and seat availability.

How might psychology be used by consumers and marketers within pricing decision-
making?
Pricing decisions are heavily influenced by consumer psychology. To influence consumer
impressions, marketers strategically use techniques including unusual pricing, anchoring,
and discounting. Odd pricing, such as $9.99, gives the impression of reduced costs, whereas
anchoring offers a costly choice upfront to make lower rates appear more affordable. Time-
limited promotions take use of people's fear of missing out, while dynamic pricing modifies
prices in real-time to maximize sales. These psychological techniques improve perceived
value and have an impact on consumers' purchase decisions and overall market success.

Recall an occasion where you experienced deceptive pricing practice and explain how
it made you feel
I remember going to McDonald's hoping to get a good deal on their marketed "value meal."
The sign outside looked tempting, offering a burger, fries, and a drink that looked reasonably
priced. I made my order, excited about the discount, only to find out at the counter that the
price did not include my favorite drink size or burger. The total cost was far more than
anticipated since additional fees soon increased. I felt a little deceived and frustrated after
that encounter. The first pricing information didn't seem to be a true depiction of what I would
actually spend, more of an advertising stunt. Such deceptive pricing methods have the
potential to damage consumer and business trust seriously.

Explore the value/usefulness of understanding Pricing

Profit Maximization:
Pricing directly impacts a company's profitability. By setting the right prices, businesses can
maximize their profits and ensure long-term sustainability.
Competitive Advantage:
A well-thought-out pricing strategy can provide a competitive edge. This doesn't necessarily
mean having the lowest prices but offering value that justifies the price, whether through
quality, unique features, or superior service.
Consumer Viewpoint:
Pricing has an impact on how consumers view a good or service. While lower prices could
indicate affordability, higher costs might be linked to superior quality.

Well done … now, I can offer you a BOGOFF deal on Prep feedbacks … interested?