Test Your Knowledge: Price Components
Determine which price component the company is using to manage its pricing policy: • Performance Benefit • Optional Price Components • Discounts and Premiums • Basis of Charge • Period of Price Effectiveness.
Question 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)
• Performance Benefit? • Optional Price Components? • Discounts and Premiums? • Basis of Charge? • Period of Price Effectiveness?
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Question 2: Software manufacturers offer discounted upgrade prices to customers who already use the old version.
(SIC 7372 -1995)
• Performance Benefit? • Optional Price Components? • Discounts and Premiums? • Basis of Charge? • Period of Price Effectiveness?
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Question 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 )
• Performance Benefit? • Optional Price Components? • Discounts and Premiums? • Basis of Charge? • Period of Price Effectiveness?
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Question 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)
• Performance Benefit? • Optional Price Components? • Discounts and Premiums? • Basis of Charge? • Period of Price Effectiveness?
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Question 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)
• Performance Benefit? • Optional Price Components? • Discounts and Premiums? • Basis of Charge? • Period of Price Effectiveness?
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Question 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)
• Performance Benefit? • Optional Price Components? • Discounts and Premiums? • Basis of Charge? • Period of Price Effectiveness?
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Question 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)
• Performance Benefit? • Optional Price Components? • Discounts and Premiums? • Basis of Charge? • Period of Price Effectiveness?
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Question 8: Best Buy sells CDs near or even below cost to lure customers into stores.
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Question 9: Marriott's pricing structure includes a seven-day advance purchase rate with up to 25% savings. Availability may be limited. The company has a 50% penalty for changes or cancellation.
(SIC 7011 – 1992)
• Performance Benefit? • Optional Price Components? • Discounts and Premiums? • Basis of Charge? • Period of Price Effectiveness?
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Question 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)
• Performance Benefit? • Optional Price Components? • Discounts and Premiums? • Basis of Charge? • Period of Price Effectiveness?
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