Discuss each of the pricing strategies below. What conditions are necessary to m
ID: 1195160 • Letter: D
Question
Discuss each of the pricing strategies below. What conditions are necessary to make each strategy successful in terms of increasing profits? Explain your answer.
a. A local restaurant/bar offers discounted drinks during “happy hour,” from 5 to 6 PM on weeknights.
b. The price Company X charges for its ink cartridges is nearly as much as it charges for a printer.
c. Packs of 5 T-shirts cost $10 while an individual T-shirt costs $4.
d. Coupons for specials at a local grocery store can be downloaded from an online site.
e. Computer and appliance manufacturers promote service contracts.
f. Microsoft Office includes several programs in one package.
Explanation / Answer
Ans.
A) This pricing strategy is a case of differential pricing strategy. In this strategy, different price is charged to the customers using the services at different point of time. This strategy is being used in order to encourage the public to use the services during non-peak hours, so that more revenue would be earned even during non-peak hours.
The condition is that enough number of customers should use the services during the period,so that overall revenue generation would be more,leading to higher profits.
b) This is called as Captive product pricing, where the printers are sold at low prices. The demand for printers and thus ink cartridges are thus being created.Afterwards customers are not left with any option than purchasing ink cartridges which are sold at higher prices. Thus high revenue is generated , leading to high profits.
The condition is that enough printers are sold and customers purchase the same brand ink cartridges and do not go for local cartridges. Then only high amount of revenue can be generated.
C) This pricing strategy is known as price bundling. In this case,the product is sold in bundles at lower price than the product sold individually.Individually the product is sold at higher price and in bundles or a pack of 5 is sold at lower price.
The condition is that enough number of bundled units are sold so that it can cover the loss of revenue by selling at lower price. Then only the revenue earned would be more and high profit is generated.
D)This is an example of convenience and discount pricing. Here the product is sold at a discounted price using the coupons and the coupons are also available at a convenient location i.e. online. Thus the customers can easily download the coupons and purchase more commodities as it is available at a discounted price.
The condition is that enough number of customers are internet savvy and well versed with computers so that they dont find any difficulty in downloading the coupons.
E)This strategy is termed as Warranty and Service Contract pricing. In this the marketer sells the product and pushes for service contracts so that one time sale can be converted into long term earnings in the form of services.
The condition is that customer should come for services only at the company authorized service center and not to any local centre and servicing should not turn out to be expensive enough, thus increasing the profits.
F) This is a case of Pure bundling pricing. In this the marketer sells various products in one package.
The condition is that all the pducts bundled should be useful to the customer and he should be willing to purchase the package. Then only it would lead to increase in revenue and thus high profits.
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