a. What is a pricing model?
b. What are the uses of a pricing model?
c. How can demographic data help to improve the quality of a pricing model? Find one successful example of a pricing model and one unsuccessful example of a pricing model.
d. What made the model successful or unsuccessful?
An industry represents a certain number of firms producing or providing the same type of product or service respectively. Therefore, based on the products being sold oe industry can be distinguished from the other.
Answer and Explanation:
a. A pricing model is a certain basis that provides a way of fixing prices of a product or a service. This basis is set after a complete analysis of the business environment of the company ranging from the nature of the industry to the strategies employed by the competitors in that type of industry.
b. The major uses of having a pricing model are that it attaches a value to the product so that it becomes worthwhile for you to provide the products to the consumer. The amounts of profits that will be earned from this provision become clear only when a price is set considering the aspects important in a business environment. A certain price that is set with the help of an adequate pricing model is a major determinant of consumer demand as well. Therefore, buying a product or not is majorly dependent on the price of the product.
c. The quality of a pricing model improves as more substantial demographic data of the customer base is calculated which means that understanding the demographics and the characteristics of the consumers that are being aimed for are understood such that the prices are set according to these demographics. Like if there are a lot of low income earners that purchase a certain product then it will be advisory to no charge high prices. Profits can be earned by sales maximization.
A successful pricing model can be that of Netflix. Before Netflix each series or show that interested people was supposed to be rented for certain time period. Netflix therefore provided the viewers of movies and series a good alternative by introducing monthly subscriptions. Paying a collective amount for an entire month to view a large number of series and movies without restrictions was an innovative and successful way introduced in the entertainment industry.
d. On the contrary, the Blockbuster, a company that was famously known for provision of videos and movies on rental basis, started failing in face of pricing models like that of Netflix. People obviously preferred the former over Blockbuster.
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from Business Analysis TrainingChapter 4 / Lesson 6