DORNEAN MARIA MIHAELA – CIG ID, AN I
II.2. PRICING
Manufacturers’ pricing strategies
❖ Companies’ prices are influenced by production and distribution costs, both
direct and indirect.
❖ Mark-up or cost-plus pricing: some companies just calculate the unit cost
and add a percentage.
❖ Most companies consider other factors, such as demand, competitors’
prices, sales targets and profit targets1.
❖ Market penetration pricing: some companies launch products at a price
that only gives them a very small profit because they want a big market
share2.
❖ Market skimming: some customers will pay almost any price so the
company can charge a really high price, then lower it to reach other market
segments.3
❖ If a company has a higher demand for its products than it is able to supply,
it can raise its prices. This is often done by monopolists.4
❖ Prestige pricing or image pricing: products positioned at the luxury end of a
market need to have a high price. The target customers will not buy them if
they think the price is too low (e.g. BMW, Rolex).
❖ Going-rate pricing: if a product is almost identical to competitors’ products,
companies might charge the same price.
Retail pricing strategies
⮚ Loss-leader pricing: retailers (such as supermarkets) often offer some items
at a very low price that is not profitable in order to attract customers who
then buy more products which are profitable.
1
Sales target/ profit target: the quantity of sales/ profit a business wants to achieve.
2
Market share refers to the proportion of the total sales in the market.
3
Market segments are those groups of consumers with similar needs and wants.
4
Monopolists are those companies that are the only suppliers of a product or service.
⮚ Odd pricing or odd-even pricing: many producers(manufacturers) and
retailers believe a customer sees a price of 29.95 $ as the 20$ price range
rather then the 30$ one.
⮚ Elasticity: demand is elastic if sales respond directly to price variations (e.g.
if the price is cut, sales increase. If sales remain the same after a change in
price, demand is inelastic).
PRACTICE
Find verbs in Manufacturers’ pricing strategies and Retail pricing
strategies sections that can be used to make word combinations with ’’prices”.
Then use the verbs to complete the sentences below:
……cut……..
……raise……..
prices
………pay…….
……charge……….
………lower…….
a. Economists say that if sales increase when you ………cut……... a price,
demand is elastic.
b. If we have more customers than products available, we generally ……raise
……. our prices.
c. Luxury goods companies make huge profits because their customers are
prepared to ……pay………. really high prices.
d. Our product’s really the same as our competitors’, so we’ll probably …………
charge ………….the same price.
e. After we’ve skimmed the market, we can ………lower………. the price to get
more customers.
II.3. QUALITY
What is quality?
The word „quality” has an everyday meaning that has to do with features,
reliability, performance, durability, aesthetics, value for money and conformance
to requirements. It has more specific meanings, too.
Quality control and quality assurance
Quality control is about detecting flaws or defects after they happen. It
involves random sampling, spot checks, inspection and testing. Quality assurance
is about prevention rather than detection. If a failure happens, then it’s isolated,
the causes are analyzed, and there is a redesign of the process or of the parts to
make sure it doesn’t happen again. The aim is zero defects, to get things right
from the first time.
Quality management
Total quality management (TQM) is a philosophy that was very popular in
the 1980s and the 90s. It aims to put an awareness of quality at the heart of all
organizational processes (e.g. customer service) and not just production. It puts
an emphasis on a continual increase in customer satisfaction combined with
lowering costs by eliminating waste.
European Foundation for Quality Management
This organization has taken the ideas of quality management and is trying
to apply them to all organizations, including those in the service sector and public
sector. It has a framework for assessing and improving organizations that is based
on 8 concepts of excellence: results orientation, customer focus, leadership and
constancy of purspose (i.e. beong faithful to aims and objectives), amanagement
by processes and facts, people development and involvement, continous
improvement and innovation, pertnership development, and corporate social
responsibility.
A variety of approaches
As can be seen, quality is a topic that occurs under the umbrella of many
different philosophies. But certain thungs are common to all the approaches:
measuring and systematizing processes; reducing variation, defects and cycle
times; and employee involvement and teamwork. The differences between the
approaches are related to which tools, checklists, measurements and training
they use.
Quality costs
Quality isn’t free – it comes with a cost. But if there are no quality
procedures, then the cost is much higher: continuing problems with the product,
a loss of confidence in the brand, the fewer sales as a result. Here are just some of
the ways that companies have to spend money and time to ensure quality:
● Prevention costs (quality assurance): engineers have to spend time with the
marketers during the development of new products to facilitate design for
manufacture. There have to be supplier capability surveys to make sure
that suppliers can achieve the quality levels that they claim. There have to
be regular meetings, education and training about quality improvement.
● Evaluation costs (quality control): the company has to inspect and test
incoming material, material that is being processed, and the finished
product. There is also the cost of buying and servicing any equipment used
for measuring and testing.
● Failure costs before delivery: there may be scrap, rework, re-inspection, re-
testing etc. If these continue at a high level, then perhaps there will be a
fundamental review of suppliers and materials.
● Failure costs after delivery: time is needed to process customer complaints,
to process customer returns, to deal with warranty claims and to handle
products recalls.
PRACTICE
Find a word in the above text that matches each definition below:
1. Things that a customer is particularly interested in; selling points .....…
features…………..
2. Lasting long ……………durability………...
3. (3 words) being similar to what customers
expect ......................conformance to requirements...........
4. Taking occasional small quantities for
testing............................sampling................................
5. (2 words) examining a process suddenly without warning.........spot
checks...................................
6. Materials that are left after a process and have no use ………waste……...
7. Set of ideas or rules on which decisions are
based..........................concepts.......................................
8. (2 words) an emphasis on achievements, especially sales and
profits........................sales target/profit target...................................
9. Something that is popular or fashionable for a short time
only.................................fad..................................
10.(2 words) how long various activities take to complete (e.g. one production
run).....................time needed.................
11.Looking at how easy it is to make a new product, not just the
features...........................training..................................
12.(3 words) asking questions to find out if your suppliers are able to meet
quality standards...........supplier capability surveys.........................
13.Materials or small parts that are no longer
useful...........scrap.........................
14.(2 words) the return of products, for example because they’re faulty or
dangerous...............customer returns.........................
Fill in the missing letters:
1. If quality is really good, then it’s outstanding quality.
2. If quality isn’t as good as other similar products, then it’s inferior quality.
3. If quality is bad, then we say it’s poor quality.
4. If you make certain that something has quality, then you ensure the quality.
5. If you improve the quality of a product, then you enhance the quality.
6. If you state the quality that you want in an exact and detailed way, then
you specify the quality.
7. If you regularly watch or check the quality of something to find out what is
happening, then you monitor the quality.
Make phrases by matching an item from each column:
Example: random sampling
1.random 2.checks
2.spot 4.first time
3.zero 5.orientation
4.right 1.sampling
5.results 3.defects
6.continuous 8.time
7.employee 6.improvement
8.cycle 10.recalls
9.warranty 7.involvement
10.product 9.claims
1. What else do you know about Total quality management (TQM) beyond
what is mentioned in the text?(write down your opinion in a short paragraph)
My opinion is that we didn t take care of our planet, we had a bad quality of
management and we distroyed the nature. Only money and power were
important. This is the point, we lost the meaning of ”quality” word.
