Posted: April 3rd, 2015

Pricing strategies

Part One

1. Answer

Price skimming is where a company charges a high price as the company is assumed to have a competitive advantage. In this article, the pricing strategy is being used by the Lexus team to market the Lexus automobile. In addition, La Prairie uses the strategy in marketing its anti-aging cream at a higher price than the one offered by its competitors. Another pricing strategy applied is market penetration pricing strategy. This strategy is used by Hyundai Motor when marketing the new Genesis sedan to compete with established luxury car makers.

2. Answer

The pricing strategy used by the Apple is price skimming where the firm charges and offers its price at a higher price than its competitors. A fair price is a price where most of the citizens can afford to buy a certain product offered on the market. Apple prices can thus be deemed unfair since not everyone can afford to purchase their products.

3. Answer

When introducing its new footwear on the market, Under Armour strategically adopted a price skimming strategy. The firm used a lot of funds on promoting the new footwear being launched. This strategy was all wrong leading to a loss in sales as investors withdrew their capital share from the stock exchange. However, in later years, the company has been able to turn around its sales revenue through better pricing strategies.

Part Two

1) Answer

Pricing strategies are core to the success of a new enterprise. It is essential to price services at a competitive price. For a new business, there are two options available to enhance its market penetration. This includes survival and performance. The first available option is to set prices high. This is appropriate when there are no competitors, or in a case where the existing competitors are not established. In the present scenario where there are two established enterprises offering the product at the same prices, it is appropriate to have low charges. With relatively lower prices than the current competitors, it is easy for a new business to penetrate the market. However, with the passage of time and offering of quality services, the new business will have a market share.

2) Answer

The break-even point is a fundamental calculation in any business. It indicates the point at which the organization meets its expenses with the current revenue being generated. The break-even point can also mean a point where the business is not incurring any loss or realizing any profit. It indicates the point where a growing business can sustain itself by offsetting expenses with the amount of revenue collected. When a business seeks to establish the break-even point, it is critical for the business to compare the total revenue to the total expenses. Considering the grooming services, there is a total cost of $1000 for the advert in the local newspaper. The revenue obtained from one dog is $40. The formula for calculating Break-even point equals Total revenue divided by total cost where total revenue is abbreviated as TR and total cost as TC. Thus Break-even point = (TR/TC). Therefore, the break-even point will be: (1000/40) = 25 dogs. This implies that, for the grooming services to recoup the amount incurred in advertisements, 25 dogs will have to be treated. However, if the charge is to be adjusted to $50 per dog, the break-even point will be (1000/50) = 20 dogs. In the second scenario, 20 dogs will be required to attain the break-even point.

3) Answer

The question revolves around exchange rates. Exchange rates cannot be considered to be stable in the market. In this regard, with the presence of market anomalies, it is difficult to speculate the future exchange rates. Fluctuations in exchange rates are caused by various factors. These aspects include political instability and government interferences through various interventions and regulations. With the instabilities in the exchange rate between the dollar and the Euro, there are two results. If the US dollar strengthened against the Euro, then the German cars would be lowly priced in the US market. This would be favorable for the Americans and disadvantageous for the German exporters. However, in a case where the Euro is to gain strength against the US dollar, the vehicles would be expensive in the US market. This scenario would favor the German exporters because it would require the Americans to pay expensively for the vehicles.

4) Answer

When prices on certain products increase, the demand for other commodities is affected. However, this depends on the relationship that exists between products. According to the price elasticity of demand, products can either be complements or substitutes. Complements are products that are consumed together. For instance, spaghetti and spaghetti sauce are complements because they are consumed together. An increase in the price of spaghetti will lead to a decrease in the demand of spaghetti and its sauce. In the case of rice, which is considered a close substitute to spaghetti, the increase in price for spaghetti will cause an increase in the demand of rice.

Response to the students.

Student 1

What we would want to do is set a price just below that of our competition without diminishing our perceived value to our customers. But this is only if our services are comparable to that of our competitors, if we are offering more or something special our competitor isn’t than our price could be higher. However, in the introductory stages, price should be what distinguishes us from the competition. Setting a competitive price will determine the success of our business in the sense that we can recover our costs that we will incur in the course of the business.

Student 2

The fluctuating value of the euro affects the price of German cars sold in the United States. Whether the value of the euro appreciates or depreciates in value will cause the price of the car sold to the United States to increase or decrease. If the euro appreciated in value the price of the car sold to the U.S. will be higher. If the euro depreciated the price of the car sold to the U.S. will be lower. Economic status in Europe determine the value of the Euro when compaired to other strong currencies like the dollar. The balance of trade between German and the united states affect the exchange rate at which one dollar will exchange for as compaired to the euro. For the price of vehicles that german exports to the united states will adversely affect the value of the Euro.