Elements of Marketing (Pricing)

Trial Questions and Answers

1. Define price and explain its importance in marketing.

Answer:

​ •​ Definition: Price is the amount of money a customer pays to acquire a product or

Example: Paying $10 for a book means the price of the book is $10.

​ •​ Importance:

​ 1.​ Price is the only factor in marketing that generates revenue; all other activities
(e.g., advertising) incur costs.

​ 2.​ It directly affects a company’s profitability and competitiveness.

​ 3.​ Pricing influences customer perception of value and brand image.

2. What are the internal and external factors influencing pricing decisions?

Answer:

​ •​ Internal Factors:

​ 1.​ Company Goals: A company focused on maximizing profits may set higher
prices, while one aiming for market share may set lower prices.

​ 2.​ Production Costs: If it costs more to produce a product, the price may increase to
maintain profitability.

​ 3.​ Company Policies: Pricing rules or strategies already in place guide

​ •​ External Factors:

​ 1.​ Competitors’ Prices: Companies monitor competitors to avoid being overpriced or

​ 2.​ Customer Demand: Higher demand allows businesses to raise prices, while low
demand may force discounts.

​ 3.​ Suppliers’ Costs: Expensive raw materials lead to higher product prices.
​ 4.​ Government Regulations: Laws on price controls, taxes, or tariffs can impact
pricing decisions.

3. Explain the three main pricing objectives with examples.

Answer:

​ 1.​ Income-Oriented Objectives:

​ •​ Target Return: Setting prices to achieve a specific profit margin.

Example: A business aiming for a 15% profit margin prices its product accordingly.

​ •​ Profit Maximization: Charging the highest possible price to maximize profits.

Example: Luxury brands like Rolex.

​ 2.​ Sales-Oriented Objectives:

​ •​ Sales Growth: Pricing products competitively to increase sales volume.

Example: Fast food chains offering discounted meal deals.

​ •​ Market Share Growth: Offering lower prices to attract more customers than
competitors.

Example: A telecom company reducing call rates to gain market share.

​ 3.​ Status-Quo Objectives:

​ •​ Meeting Competition: Pricing products similar to competitors.

Example: Gas stations in the same area often have similar prices.

​ •​ Non-Price Competition: Competing through quality, branding, or customer service

Example: Apple focuses on innovation and branding instead of low prices.

4. Differentiate between price competition and non-price competition with examples.

Answer:

​ •​ Price Competition:

​ •​ Businesses compete by lowering prices.

​ •​ Effective for low-cost producers with flexible pricing models.

​ •​ Non-Price Competition:

​ •​ Businesses compete by offering superior quality, branding, or customer service.

Example: Tesla focuses on innovation and performance rather than pricing.

5. List and explain four pricing strategies companies can adopt.

Answer:

​ 1.​ Low-Price Strategy:

​ •​ Offering lower prices to attract cost-conscious customers.

Example: Budget airlines offering cheap tickets.

​ 2.​ Market-Price Strategy:

​ •​ Setting prices close to the market average to maintain competitiveness.

Example: Milk or bread priced similarly across supermarkets.

​ 3.​ High-Price Strategy:

​ •​ Charging premium prices for high-quality or luxury products.

Example: Designer clothing brands like Gucci.

​ 4.​ Promotional Pricing:

​ •​ Temporarily reducing prices during promotions to boost sales.

Example: Black Friday sales with significant discounts.

6. What are the new product pricing strategies? Explain with examples.

Answer:

​ 1.​ Skimming Pricing:

​ •​ Launching a product at a high price and gradually lowering it.

Example: New iPhones are initially priced high, with older models becoming cheaper over time.

​ 2.​ Penetration Pricing:

Example: A new streaming service offering a free trial or low introductory rates.

​ 3.​ Destroyer Pricing:

​ •​ Setting extremely low prices to drive competitors out of the market.

Example: A supermarket selling bread below cost to attract customers from competitors.

​ 4.​ Promotional Pricing:

​ •​ Temporary price reductions to attract attention.

Example: Restaurants offering “buy one, get one free” deals during lunch hours.

7. How does customer demand influence pricing decisions?

Answer:

​ •​ When demand is high, businesses can increase prices to maximize revenue

Example: Hotel prices increase during holiday seasons due to high demand.

​ •​ When demand is low, businesses may lower prices to attract more buyers.

Example: Retailers offering end-of-season sales to clear inventory.

8. Explain the differences between skimming pricing and penetration pricing.

Answer:

​ •​ Skimming Pricing:

​ •​ Start with a high price and reduce it over time.

​ •​ Targets customers willing to pay a premium initially.

Example: New smartphones or electronic gadgets.

​ •​ Penetration Pricing:

​ •​ Start with a low price to gain market share quickly.

​ •​ Targets price-sensitive customers.

Example: A new detergent brand offering low introductory prices.

Answer:

​ •​ Reason for Adoption: To attract attention, boost sales temporarily, and clear
excess inventory.

​ •​ Benefits:

​ 1.​ Encourages new customers to try the product.

​ 2.​ Increases sales volume during slow periods.

​ 3.​ Helps clear out old stock before introducing new products.

Example: Electronics stores offering discounts on older TV models before launching new ones.

10. What role does government regulation play in pricing decisions?

Answer:

Government regulations can:

​ 1.​ Set price ceilings to prevent overcharging.

Example: Rent controls in housing markets.

​ 2.​ Impose taxes or tariffs that increase production costs, leading to higher prices.

Example: Import duties on cars raising vehicle prices.

​ 3.​ Mandate fair pricing to prevent exploitation of consumers.

Example: Laws against price gouging during emergencies.

I wish you all the best in your exams 🫶🏾

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