Page 157 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Entrepreneurship and Small Business Management

Notes If you buy chocolate bars or potato chips (crisps) you expect to pay X for a single packet,
although if you buy a family pack which is 5 times bigger, you expect to pay less than 5X the
price. The cost of making and distributing large family packs of chocolate/chips could be far
more expensive. It might benefit the manufacturer to sell them singly in terms of profit margin,
although they price over the whole line. Profit is made on the range rather than single items.

Optional Product Pricing

Companies will attempt to increase the amount customers spend once they start to buy. Optional
‘extras’ increase the overall price of the product or service. For example airlines will charge for
optional extras such as guaranteeing a window seat or reserving a row of seats next to each
other. Again budget airlines are prime users of this approach when they charge you extra for
additional luggage or extra legroom.

Captive Product Pricing

Where products have complements, companies will charge a premium price since the consumer
has no choice. For example a razor manufacturer will charge a low price for the first plastic razor
and recoup its margin (and more) from the sale of the blades that fit the razor. Another example
is where printer manufacturers will sell you an inkjet printer at a low price. In this instance the
inkjet company knows that once you run out of the consumable ink you need to buy more, and
this tends to be relatively expensive. Again the cartridges are not interchangeable and you have
no choice.

Product Bundle Pricing

Here sellers combine several products in the same package. This also serves to move old stock.
Blue-ray and videogames are often sold using the bundle approach once they reach the end of
their product life cycle. You might also see product bundle pricing with the sale of items at
auction, where an attractive item may be included in a lot with a box of less interesting things so
that you must bid for the entire lot. It’s a good way of moving slow selling products, and in a
way is another form of promotional pricing.

Promotional Pricing

Pricing to promote a product is a very common application. There are many examples of
promotional pricing including approaches such as BOGOF (Buy One Get One Free), money off
vouchers and discounts. Promotional pricing is often the subject of controversy. Many countries
have laws which govern the amount of time that a product should be sold at its original higher
price before it can be discounted. Sales are extravaganzas of promotional pricing!

Geographical Pricing

Geographical pricing sees variations in price in different parts of the world. For example rarity
value, or where shipping costs increase price. In some countries there is more tax on certain
types of product which makes them more or less expensive, or legislation which limits how
many products might be imported again raising price.

Did u know? Some countries tax inelastic goods such as alcohol or petrol in order to increase
revenue, and it is noticeable when you do travel overseas that sometimes goods are much
cheaper, or expensive of course.

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