Pricing Strategies

Chapter 10 Homework:

Q2)

1. Order discount pricing structure: Gives customers who purchase large amounts at one time a lower per unit cost than those making smaller orders. The small bagel shop can offer lower prices to customers willing to buy a dozen bagels instead of 2 or 3.  The lower the per-bagel cost for those who buy many is complemented with a lower VTC per bagel for those customers.

For example the each bagel costs $0.99 with a larger quantity the bagels per unit price can go down making it cheaper for the customers yet still be profitable for the owners.

1. Cumulative- Purchase discount: Gives customers who have made many purchases from the seller a lower price for new purchases than customers who have done less.

This can implemented by having a bagel punch card, customers who have visited the store for 10 times will have their card punched and the 11th punch will give customers free or discounted bagels.

1. Two part pricing structure: For the small bagel shop, a membership card that provides customers with lower per-unit costs. The customers would have to a small amount of a fixed fee and then would be granted lower per unit costs on bagels.
2. I think order discount pricing and cumulative purchase discounts will be more effective for the owner to implement. People like hearing the word free and discounts it tends to attract more customers. Grouping items together and selling it for less tends to make customers feel their getting their money’s worth. Having a punch card encourages customers to keep purchasing bagels to reach the 10th punch to get a free or discounted bagel. Buyers who are more likely to buy in bulk tend to be more price sensitive. Catering to their needs will result in higher profitability rates. The last option of the two part pricing is not practical or feasible as many individuals don’t find it necessary to create a bagel shop membership and pay 2 fees instead of 1.

Q4)

1. Bundle for both products would be priced at $23 , this is because the highest customers from both segments are willing to pay for product A= $12 in this case the men are more price sensitive the women (priced product A=$14). If the seller is dependent on both segments than they must set the price at the lower end of the spectrum. As for Product B the highest customers are willing to pay is = $11. In this case, women are more price sensitive to product B as men were willing to pay=$15.  ). If the seller is dependent on both segments than they must set the price at the lower end of the spectrum.
2.  Priced separately:

• Men:  $ 27
• Women: $ 25

Bundled together = $25 which is $2 more profitable when bundling both products separately.