Question

In: Economics

Give two examples of brands where manufacturing costs are well below the selling price. With that...

Give two examples of brands where manufacturing costs are well below the selling price. With that in mind provide answers to the below questions;

1. How have the companies been successful in charging high prices to the brand’s consumers, despite the low costs of manufacturing?

2. How is customer information used as a part of the pricing strategy?

Be prepared to discuss and defend your choices with your classmates.

Your Discussion should be a minimum of 250 words in length and not more than 750 words. Please include a word count. Use APA citations and references for the textbook and any other sources used.

Solutions

Expert Solution

1)Companies use a premium pricing strategy when they want to charge higher prices from their consumers for their products than their competitors.They want to create a perception that their product is superior and has a higher value than the products of the competitors and hence prices are higher.Marketing managers want to make the consumers believe that the brand name itself assures that the product is superior than their competitors.Premium pricing strategy increases the profit margin of the company.It creates barriers to entry for the competitors and thus increases the brand value for the products of the company.

2)Customer information is used by small firms in order to get engaged in more aggressive pricing policy in comparison to dominant firms . Symmetric information on preferences for brand, results in higher prices for old customers but for new customers lower prices are offered. There is increase in price discrimination with asymmetric information on type of customer.Again ,the manager's age,education , experience influence pricing behaviour. More customers are being served in markets with asymmetric brand preferences as a result of  information on vertical differentiation.However customer welfare is served more if customer privacy is maintained in symmetric markets and giving encouragement to small firms to access customer information.


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