Tutorial 9

Pricing Products: General Pricing Consideration Approaches and strategies

1.Identify and define the internal factors affecting a firm's pricing decisions.

2.Identify and define external factors affecting pricing decisions, including the impact of consumer perceptions of price and value.

3.Contrast the three general approaches to setting prices.

4.Assume the role of the vice president for financial affairs at a major college or university. For the past three years, enrollments and revenue have declined steadily at a rate of about 10 percent per year. You are under great pressure to raise tuition to compensate for the falling revenues. However, you suspect that raising tuition might only make matters worse. What internal and external pricing factors should you consider before you make your decision? Explain.

5.A seller's pricing freedom varies with type of market. Economists generally recognize four types of markets, each presenting a different pricing challenge. Identify each of these market forms and discuss the pricing challenges facing each one.

6.Genentech, a high-technology pharmaceutical company, has developed a clot-dissolving drug (no other such drug in the market) called TPA. This drug can halt a heart attack in progress. It has been proven that TPA saves lives, minimizes hospital stays, and reduces damage to the heart itself. It was initially priced at $5,500 (with 50% profit margin) per dose. What pricing approach does Genentech appear to be using? Is this approach justified? Is demand for this drug likely to be price elastic?

7.Discuss the typical pricing objectives outlined in the chapter. Which of these objectives do you believe: (a) is the most commonly used; (b) is the most difficult to achieve; and (c) has the greatest potential for long-term growth of the organization? Explain.

8.Detergent A is priced at $2.19 for 32 ounces, whereas detergent B is priced at $1.99 for 26 ounces. Which brand appears most attractive? Assuming equal quality, which is the better value? Is there a psychological reason to price this way?