Entrepreneurship and Business Management N4 Past exam Papers | pricing strategy

pricing strategy

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Effie is a new domestic appliance that irons your clothes for you. You can take your clothes from the washing machine, hang them on Effie and press start. This amazing appliance will dry and iron your clothes.

QUESTION

Which pricing strategy could be used to introduce Effie in the
market? Substantiate your answer.

The following pricing strategies may be used to introduce Effie in the market

1, Price skimming

Effie can be introduced to the market using a Price skimming strategy, where a high price is initially charged for the product and then gradually lowered over time. This strategy is ideal for a new product like Effie, especially when it’s innovative and has unique features that differentiate it from existing offerings.

By setting a high initial price, the company can capture the maximum amount of revenue from customers who are willing to pay a premium for the product.

A high initial price can also signal to consumers that the product is of high quality or exclusive, which can help create a perception of value

Lastly, price skimming can help the company recoup its investment quickly. This is especially useful for products that have high development or production costs,

2, Sliding down the Demand Curve Strategy

Effie can utilise this strategy by gradually reducing the price of the product over time to attract different segments of the market as demand evolves. This pricing strategy can be used to capture additional market share, especially after initially targeting a more affluent or niche market segment with higher prices.

By sliding down the demand curve, Effie can expand its market reach and attract a broader customer base. The lower prices make the product more accessible to a wider range of consumers, increasing sales volume and market share.

QUESTION

Suggest TWO other pricing techniques that could be used to sell this domestic appliance. Substantiate your answer

The two additional pricing techniques that could be used to sell the Effie domestic appliance are

1, Odd Pricing:
Odd pricing, also known as psychological pricing, involves setting prices that end in odd numbers, such as 19.99 Rands instead of 20 Rands. This technique capitalizes on consumers’ perception that prices ending in odd numbers represent a better deal or value for money.

Using odd pricing for the Effie appliance can make it seem more affordable and attractive to consumers. For example, pricing the appliance at 199.99 Rands instead of 200 Rands can create the perception of a significant price difference, even though it is only a cent less.

2, Opportunistic Pricing:
Effie can also be marketing using opportunistic pricing. This strategy involves adjusting prices based on market conditions, competitor actions, or specific events to maximize profits or create an exclusive image for the business. The company selling the Effie machine can take advantage of opportunities to charge higher prices when demand is high or when the product is perceived as unique.

The business can also time price changes by capitalizing on factors like seasonal demand, limited edition releases, or product shortages.

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