Comment
Majority of the candidates attempted this question and performed poorly. The expected answers included:
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(a) The determinants of price:
- Cost of the production – This is the most important in pricing a product.
- Ability and willingness of customers to pay – Sellers are always conscious of customers’ purchasing power and their willingness to pay the prices charged for the products on sale.
- Competition – The extent of competition among sellers has huge impact on pricing of products.
- Company objectives – The objectives of the company has a considerable impact on the price of a product.
- Government legislation /policy – Sometimes, the pricing of products is subjected to government legislation especially in government controlled economies.
- Marketing intermediaries – Middlemen often have a say in determination of the price of a product.
- Demand for the product – Sellers will always consider levels of demand for their goods in fixing prices for products.
- Seasonal product – Producers tend to reduce price during off-season period.
- Cost of distribution: This is the cost of moving a product from the producer to the customers.
- Cost of promotion - This is the cost incurred in creating awareness for the product.
(b) Pricing methods:
(i) Competitive pricing - This is a method of pricing where the company determines the price taking into consideration what their competitors charge for the same product.
(ii) Cost Plus - This is a method which the final selling price is the cost of material and labour services in addition to a proportion representing the client’s profit/mark up. The addition to the cost is meant to be made up completely of profit/mark up.
(iii) Demand Oriented Pricing – Firms aimed at influencing consumer perceptions or behaviours through their needs for product based on perceived value pricing, price-quality relationship, loss leader pricing, odd price lining.
