In: Economics
Nieuwenhuizen (2016) states that “The primary task of a price is to cover costs and thereafter to make a contribution to profit.”
Q.3.1 Define the seven factors which influence the pricing of products and services. You may use examples to support your answer.
Q.3.2 The five most important factors to consider when deciding on a promotional mix are location of customers, the characteristics of the target market, nature of the product, available budget and the current stage of the product life cycle. Explain each of these factors as the pertain to the promotional mix by using practical examples.
Q.3.3 Differentiate between a brand and a trademark. You are allowed to use relevant examples to support your answer.
Q.3. (1) 7 factors which influence pricing of products and services
1.cost
While fixing the price of product,company should consider both the variable as well as fixed cost,that was required to make the product.cost should not exceed revenue,otherwise company can go into loss.
2.image of the firm
Depending on image of the firm,company should set the price of a product,for example apple inc has high image and high brand value,so it can set high price for its product.
3.product life cycle
If the product is at its introductory stage,firm may charge lower price and once the firm grows to a certain extent then higher price can be charged.
4.promotion of product
If the product's promotion through advertising involves high cost,then price of the product should be set high and if product involves lower advertising cost,then price of the product should be set low.
5.competition
If there is high degree of competition for a product,then price should be set low in order to face the competition but if the degree of competition is low then high price can be set.for example,apple inc has low degree of competition and therefore it set's the price of its product high.
6.economic conditions
Price should be set,depending on economic conditions.if recession is there price should be set low,as consumers would not have more money to spend.during inflation prices can be set high because at that time income of people is more.
7.consumers
Price should be st depending on the type of consumers.if the product is demanded by rich consumers,price can be set high,but if the product is inferior good then low price should be set.
Q.3.(2) 5 factors pertaining to the promotional mix
1.location of customers
If the number of customers for a product are geographically located in a vast area then the advertisement of the product is important in order to reach a large scale of customer base but if the product has narrow base geographically,then advertisement will not be necessary.for example apple inc has to advertise because it has customer base on a global scale.
2.characteristics of the target market
Age,location,income or lifestyle are some of the target areas for a product promotion.if the product is ferrari car,it will be bought by high income customers,and people who are having high lifestyle.the promotion of the product would be done considering these aspects.if the product is bike,it can be purchased by middle income customers also.firm will advertise about bike,keeping in mind the type of bike customers prefer.
3.nature of the product
If the nature of the product is high and it is demanded by large customer base,then advertisement for such product should be carried out to a large extent.if the product nature is not high and customer base is not large then little or no advertisement can be followed.
4.available budget
If the firm has high budget then it can advertise heavily but if the budget is small then little or no advertisement should be followed.cost is very important because firm should not go into loss.high advertising cost can be incurred by high budget firm.for example apple inc has high budget so it can incur high advertising cost.
5.current stage of the product life cycle
If the product is at introductory stage then little advertising should be carried out but if the product has grown to a large extent,it can advertise heavily.for example apple inc has grown to a large extent so it can advertise heavily.
Q.3.(3) difference between brand and trademark
A brand name can be given by a firm without any legal recognition whereas a trademark requires legal recognition.companies give their product brand name to develop their product whereas trademark is created by legal process to protect the product identity and its significance.a unique design can be created for a trademark whereas for a brand design is not necessary.