Question 1
Pricing is one of the most important aspects of a business. A mistake made on pricing means danger to profits or the reputation of the business. Different businesses apply different pricing strategies depending on several reasons, whether they prefer lowering their prices, which brings a large number of customers or a few customers at high product prices. One of the strategies used by several businesses is premium pricing, which is all about product pricing. In a premium pricing strategy, businesses set prices of their goods and services at high levels to give a perception of product quality (Deshpande, 2018). The uniqueness of the strategy is that it applies higher prices to create and attract fewer better and quality customers. The high prices also make the customers value the goods of the business.
The strategy is unique in that it is possible to make more profits after selling fewer goods than selling many products at low prices. For manufacturing businesses, it would mean less input of raw materials. The strategy is agreeable because of its uniqueness and the benefits it has as well as the fact that certain goods only have high sales when they have high prices. Goods such as phones (apple), cars, jewelry, and certain clothing are perceived to be of better quality because their prices are high which motivates the customers to buy the goods (Deshpande, 2018). Therefore, high prices increase the chances of purchasing the products and becoming regular customers of the business. With the premium pricing strategy, therefore, a business can build a strong connecting with a few high-quality customers and get more profit with few sales. Thus, Freud’s philosophy of using price to create fewer customers rather than more customers is agreeable.
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Question 2
Several entrepreneurs, first timers in most cases, face challenges when they set the prices of their goods and services too low. First-time businesses set prices on their products and services too low to attract customers, and in this way, they can easily enter the market and compete with other established businesses for customers. They tend to believe that cheap products and services are the perfect means by which they can become relevant and gain an advantage in the market (Scarborough, 2012). Some may set the prices of specific products low to sell other more expensive items. Although their reasoning for fixing prices on the goods and services too low may be valid, such entrepreneurs often fall victims to this pricing strategy due to several reasons. One of the reasons includes the fact that most customers often associate low prices of goods to low quality and that low pricing often leads to low profits, which may cause businesses to collapse.
Many individuals or customers have the opinion that the higher the price of a particular good, the higher the quality. Prices on products and services that are too low can, therefore, send a message to such potential customers that the quality of the particular product or service is of low quality. Setting prices of goods and services low can also lead to very low profits and even losses in some cases. Many first-time entrepreneurs incur losses instead of profits when they set their pricing too low. While setting the prices of their goods and services too low, such entrepreneurs fail to recognize that the price is just one element in the market and is often not the most salient one to most customers (Scarborough, 2012). Since they excessively focus more on lowering the prices, they fail to give convenient attention that they are supposed to proffer to their customers which contributes to their failure in attracting customers and sell their products regardless of the low pricing. This can detrimentally lead to their collapse.
References
Deshpande, S. S. (2018). Various Pricing Strategies: A Review. IOSR Journal of Business and Management (IOSR-JBM) p-ISSN: 2319-7668. Vol. 20, Issue 2. Ver. VIII (February). 2018), PP 75-79.
Scarborough N. M., (2012). Effective Small Business Management an Entrepreneurial Approach. Prentice Hall ISBN 10: 0-13-215746-2 ISBN 13: 978-0-13-215746-9 (345-372).
