SELF TEST #23: Using the Components of Price
In the following examples, determine which price component the company is using to manage its pricing policy: Performance Benefit, Optional Price Components, Discounts and Premiums, Basis of Charge, or Period of Price Agreement.
Mail-order shoppers usually are charged for shipping according to the total price of their order – not the weight or volume of the package being shipped. So, customers who order light products feel cheated.
(SIC 5961 – 1995)
Software manufacturers offer discounted upgrade prices to customers who already use the old version.
(SIC 7372 -1995)
At Mt. Reba, parents can get free lodging and skiing for children 12 and under when staying midweek in a Bear Valley hotel room, condo or home rental.
(SIC 7011 -1988)
UPS is boosting the cost of ground shipping for packages at least 2.9%. UPS determines price by a combination of weight and distance.
(SIC 4513 – 1996)
HLW has an incentive-based fee scale for a laboratory it's designing. 10% of the total fee is at risk. Various benchmarks must be hit for HLW to receive all its potential revenue.
Because stainless-steel producers are living hand-to-mouth, they are reluctant to sign quarterly supply contracts. Instead, they are buying relatively small lots of nickel on the spot market.
(SIC 3300 -1985)
To avoid volatile commercial property and casualty rates, some firms try offering more three-year contracts, sharing some risk by locking in premiums for nervous clients. Johnson & Higgins offers a property policy that sets premiums for 10 years and puts a portion of the cost in a "premium reserve," which the insured keeps if claims don't surpass a set level. At worst, the insured forfeits the reserve. At best, it has stable premiums, despite any disaster, and it may share profits.
(SIC 6331 -1991)
Best Buy sells CDs near or even below cost to lure customers into stores.
Marriott's pricing structure includes a seven-day advance purchase price with up to 25% savings. Availability may be limited. The company has a 50% penalty for changes or cancellation.
(SIC 7011 – 1992)
American Express continues to charge $10 for reissuing a ticket, $10 for overnight priority mail, $75 for planning a complicated domestic itinerary and $150 for planning a complicated international itinerary.
(SIC 4724 – 1995)
What are the major components of price?
How can a company change its Performance Benefits in order to change its price?
Are there other components that might be added to the variable price of the product?
Why would a company use Discounts or Premiums beyond those that are traditional for size of purchase and timing of payment?
How does the Company use the Basis of Charge in its pricing?
What does the period of price agreement do to pricing?
Next: Answer Sheet