SELF TEST #23: Using the Components of Price

Test #1:

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.

Example #1:
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)

Example #2:
Software manufacturers offer discounted upgrade prices to customers who already use the old version.
(SIC 7372 -1995)

Example #3:
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)

Example #4:
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)

Example #5:
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.
(SIC 8900-1996)

Example #6:
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)

Example #7:
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)

Example #8:
Best Buy sells CDs near or even below cost to lure customers into stores.

Example #9:
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)

Example #10:
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)

Test #2:

What are the major components of price?

Test #3:

How can a company change its Performance Benefits in order to change its price?

Test #4:

Are there other components that might be added to the variable price of the product?

Test #5:

Why would a company use Discounts or Premiums beyond those that are traditional for size of purchase and timing of payment?

Test #6:

How does the Company use the Basis of Charge in its pricing?

Test #7:

What does the period of price agreement do to pricing?

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