PRICING STRATEGY

PRICING STRATEGY PRE-FINALS EXAM

Versioning

The problem with offering the same product to all buyers is that not all of them value all the features of the product in the same way.

Versioning

For this reason, it is useful to add or subtract features of the product in different ways, to offer multiple versions of the same basic product.

Bundle

This is a collection of distinct products or services that are sold together as a package.

Bundle

By this standard, though, everything under the sun, except the fundamental building blocks of nature, constitutes a _

Bundle

Instead, we suppose that what constitutes a __ should be evaluated from the perspective of the buyer.

Pure Bundling

The seller does not make the items in a bundle available for sale individually even though it could.

Pure Bundling

Bundling is usually considered illegal when it involves _

Mixed Bundling

The seller gives the buyer the option to buy the bundle or any subset thereof.

Tying good

the sale of one good (__) to the customer is conditional on the purchase of a second distinctive good (the tied good)

Tying good

The seller chooses to offer a bundle and only one of the components individually.

Tied good

Tying In this case, the sale of one good (the tying good) to the customer is conditional on the purchase of a second distinctive good (_).

Complementarities/Synergies

If a collection of components complement each other, there is a clear benefit to bundling them. Printers and toner cartridges are an example.

Economies of Scale

This are also offered because of economies of scale in manufacturing and distribution. The cost of packaging and selling an individual stick of chewing gum is prohibitive, so they are sold in bundles of ten at a minimum.

Variety

In deciding on the number of versions of a basic product and how to price them, the firm needs to worry about the costs of producing and distributing the __ of products chosen and the consequent cannibalization of sales.

Variety

Sometimes a seller will bundle products that are substitutes for each other because buyers have a preference for variety.

Bundling

This is a collection of distinct products or services that are sold together as a package.

Bundling

A familiar example of __ is a suite of software programs sold in one box. Season tickets to the theater, round-trip air tick, and prix fixe menus and meal deals in restaurants are other examples.

Bundling

There are three kinds of:

Nonlinear Pricing

This represents the ultimate in pricing multiple units to absorb as much consumer surplus as possible.

Nonlinear Pricing

To implement a sophisticated __ scheme, one needs to break down the demand at each price into the number of people who bought only one unit at that price, two units at that price, and so forth.

Gray Markets

The most visible instance of arbitrage associated with price discrimination are __

Gray Markets

This refers to the unauthorized transfer of goods from one distribution channel or market to another.

Arbitrageurs

The obvious beneficiaries of gray markets (other than buyers) are the __ who buy low in one market and resell high in another.

some Arbitrageurs

__ violate distribution agreements by selling overstocks of products that are near the end of their life rather than returning them to the supplier.

A Gray Market

This possesses four challenges to a seller

Gray Market 1st challenge

It reduces the profits to be had from price discrimination.

Gray Market 2nd challenge

Unchecked, it may damage channel relationships. Authorized distributors frequently shoulder expenses that a gray marketer does not.

Gray Market 3rd challenge

It can damage the seller’s reputation. For example, the image of luxury brands can be damaged if these products are readily available at lower prices.

Gray Market 4th challenge

It disrupts sales forecasts and inventory policies. The existence of a thriving gray market can distort the accuracy of sales forecasts because it cannibalizes sales that might otherwise have come through authorized channels.

Nikon

refuses to repair a gray-market camera even if a customer is willing to pay for the repairs

Sony is an example

In other cases, the seller will decline to honor the warranty of an item purchased on the gray market.

Patents

This sometimes prohibit reimportation

Trademark and copyright laws

Trademark and __ laws allow the seller to petition for the removal of advertisements that violate trademark or copyright laws.