Problem

What type of geographic pricing policy is most appropriate for the following products (s...

What type of geographic pricing policy is most appropriate for the following products (specify any assumptions necessary to obtain a definite answer): (a) a chemical by-product, (b) nationally advertised candy bars, (c) rebuilt auto parts, and (d) tricycles?

Step-by-Step Solution

Solution 1

Price is something which serves much purpose for the organization. The major purpose which the price fulfills is the sales motive. The price is something which helps the customers to decide whether to purchase the product or not.

A price skimming strategy is the one which sets high price for the products at the very initial stage without bothering about the price sensitive customers.As the company is charging more prices in comparison to others and choosing its own target customers through this. This strategy is useful when there are fewer substitutes in the market and the demand of this kind of product is very high in the market.

A penetration pricing strategy is the one which sets low prices at the initial phase and gradually starts increasing the prices. As the people who are price sensitive would like to by more of this product due to its low price. This strategy is useful when there are many substitutes in the market and demand is low as well.

The following types of pricing policy will be suitable for following types of products:

1. A chemical by product:

This is a kind of product which is generally of a low demand. The substitute of this kind of product is also not available in the market. So, Penetration pricing strategy will be more suitable.

2. Nationalized candy bars:

Since this kind of products are highly in demand in the market. The company should price skimming strategy in this case to earn profits.

3. Rebuilt auto parts:

The rebuilt auto parts are less in demand in the market. So the company should use penetration pricing strategy.

4. Tricycles:

Since tricycles are also high in demand in the market. The companies should use skimming strategy for earning profits.

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