Short Type Questions - Enterprise Marketing, Entrepreneurship, Class 12 | Additional Study Material for Commerce PDF Download

Q1. Name and explain the method of pricing in which price of a product is fixed consciously at a low level with minimal margin of profit. (CBSE 2011 A.I.) (4 marks)
Ans. The method of pricing in which price of a product is fixed consciously at a low level with minimal margin of profit is penetration pricing method.
Under this pricing strategy the price of a product is initially set at a price lower than the eventual market price to attract customers.

Q2. Distinguish between the Cost Plus Pricing Method vs Variable Pricing Method. (CBSE 2009 A.I.) (4 marks)
Ans. Cost Plus Pricing Method : Under this method, price of a product is fixed to cover the total cost of production with reasonable margin of profit.
Price = Cost of production + Profit margin.
Cost of production must include all fixed and variable costs incurred in the process of production. Cost per unit is calculated by dividing the total production cost by the number of units produced. It is easy to calculate the selling price of a product.
Variable Pricing Method : Variable pricing technique is one in which different prices are charged from different categories of customers. There is price discrimination. Many factors are responsible for the variation in the prices.
If the customer is purchasing more quantity of particular product he will be offered lower price. If the demand for the product increases in the market than higher price can be charged. This method is usually adopted when the entrepreneurs deal with different market segments.

Q3. Why is pricing crucial in an entrepreneurial activity ? (4 marks)
Ans. In an entrepreneurial activity pricing is crucial because of following reasons :
(a) Profit : When the predetermined price is fixed an entrepreneur can obtain predetermined profit.
(b) Sources of Revenue : Selling of the product is the only source of revenue for the producer. A regular sale makes the revenue regular.
(c) Determines Demand : Demand is dependent on the price of the product . Carefully fixed price by an entrepreneur does not lose its customer, on the contrary there is continuous increase in its customers.
(d) Marketing Strategy : Marketing strategy for the product changes with the change in price.

Q4. What factors influence decisions on pricing ? (4 marks)
Ans. Pricing is affected by following factors :
(a) Cost of Production of the Product.
(b) Prevalent Competition in the Market.
(c) Choice and Preference of the consumers.
(d) Goals of the firm.
(e) Demand of Product in the Market.
(f) Method of Pricing selected by the entrepreneur.
(g) Rules and Regulation related with product.
(h) Income Group of the targeted customers.
(i) Elasticity of factors of Production.

Q5. What is Variable Pricing Technique ? (3 marks)
Ans. Variable Pricing Technique is one in which different prices are charged from different categories of customers.
Many factors are responsible for the variation in the price. If a customer is purchasing more quantity of the product, he will be offered lower price. If the demand for the product increases in market then higher price can be charged. This method has both the objectives viz. selling more quality and also charging higher but at different times. e.g. Indian railways charges different fares for AC 3 tier, AC 2 tier, second class and general compartment.

Q6. What major consideration affect the Variable Price Method ? (3 marks)
Ans. Following are the major consideration which affects the variable price methods :
(a) Paying capacity of customers.
(b) Volume of the product purchased by the customer.
(c)Bargaining power of customers.
(d) Choice and preference of the customers.
(e) Expectation about changes in demand of the product in the future.
(f) Acquaintance of the firm with customers.

Q7. What is meant by Based Pricing and Discount Method ? (4 marks)
Ans. Base pricing and discount method is the method in which the entrepreneur fixes one price for its commodity. This price is calculated in advance considering the point that discount will be offered during the sale. Here, the discount offered is of various types. Depending on the type of customers the various rates of discount are fixed. Discount is offered to all the customers but at different rates. The wholesaler discount may be different from volume discount, discount for transaction and off season discount.

Q8. Will you, as an entrepreneur, use the base pricing method for consumable items ? Justify your answer. (CBSE 2005 A. I.) (4 marks)
Ans. Yes, an entrepreneur could use the base pricing method for consumable item. This is because of following reasons :
(a) Raising the sales : When the discount is assured on the consumable item, customers will be attracted towards the item. This will increase the sales.
(b) Easy promotion : Due to varying discount, the promotion of the product becomes easy, as discount rates can be made public easily and effectively.
(c) Customers will not be lost : If one rate of discount is not acceptable then the other and more effective discount can be offered.
(d) Scope for bargain : Bargain on price or discount is possible in this method. This bargain can be initiated by entrepreneur and also by the customers leading to productive transaction for the entrepreneur.

Q9. What is trade discounting ? Why is it done ? (4 marks)
Ans. Trade discounting is the method of discounting in which the supplier offers a decent profit margin to retailer on the scale. Entrepreneur can also provide this to wholesaler. This can be done by deducting the percentage of discount from the wholesaler’s or retailer’s price. Mostly this type of discount is offered on volume purchase or for sales promotion. Such discounts mostly offered to the members of same trade and not to the final consumers.
Advantages of trade discounting :
(1) Increase in trade satisfaction as the members of trade receive satisfactory discount.
(2) It reduces the chances of loss as the costs are covered.
(3) Profit margin of wholesaler and retailer is maintained.

Q10. What is quantity discounting ? (3 marks)
Ans. It is a type of discounting in which discount is offered by entrepreneur or seller on bulk sales. It can be referred as reduction in price of the product or service that a seller offers to anyone who purchases more than a minimum quantity e.g., a company offers 10% discount on purchase upto Rs. 1 lakh and 20% discount of the purchase of goods above Rs. 1,50,000.

Q11. Market Rate Method is useful for new entrepreneurs. Why ? (3 marks)
Ans. Market Rate Method is useful for new entrepreneurs because of following reasons :
(a) Low Risk : Keeping the price of the product equivalent to the Market rate minimizes the risk of loss to a new entrepreneur.
(b) More Chance of Success : The price fixed are competitive. This provides more chances of selling the new product in the market.

Q12. What is Penetration Pricing ? (3 marks)
Ans. Penetration pricing is the method of pricing, in which the entrepreneur introduces its product in the market with low price compared to competitors. The low price increases the sale of the product tremendously. Normally, for keeping low price, the profit margin is normally kept very low. The product thus, captures the major part of the market, e.g. Hero Honda, CD Dawn, Motorbike was introduced with the same pricing methods. The CD Dawn penetrated in the Market and captured major part of the market recently. Wheel active detergent powder kept the price of ` 20 per half kilogram. This also captured the market quickly.

Q13. What are the advantages of Penetrating Pricing Method ? (4 marks)
Ans. Following are the advantages of Penetrating Pricing Method :
(a) Quick rise in sales : Penetrating pricing results in the increase in sales with a very high speed.
(b) High turnover : The turnover of the enterprise is raised in very short duration. This strengthens the position of enterprise in the market.
(c) Suitable for new product : Any product, which has already good competitors in the market can utilize this method for assured sale of each unit.
(d) Return on investments : This method brings decent return on investments. Minimum profit margin is also assured with the sale of each unit.
(e) Best method for price elastic goods : When a small change in price brings more change in demand, such products have penetrating pricing as the best method.

Q14. Mention the disadvantages of Penetrating Pricing Methods. (3 marks)
Ans. Following are the disadvantages of penetrating pricing methods :
(1) This method is applicable only to the product and services, which have high price elasticity. Thus it is not applicable to all the products.
(2) Profit margin is low in the price fixed by such method. This profit may not be sufficiently compared to the cost of production and promotion.
(3) Turnover of the enterprise increase tremendously. Such enterprises have to prepare themselves for a situation of more financial requirements.

Q15. A grocery store sold in a day different quantity for different products at the prices indicated against them :

The shopkeeper also found, based on the number of bills issued by him, that there were 50 customers.
If customer is the unit sale, what is the “Unit Price” in the above case ? If the cost of each grocery item is 75% of its selling price, calculate the “unit cost” and the “gross margin” per unit of sale. (SQP) (4 marks)
Ans. Unit Price = Total Billed Amount/No. of customers
= [(`40×35) + (`40×10) + (`5×5) + (`15×10) + (`5×5)]/50
= `40
\ Unit price per customer is `40.
Unit cost = `40 × 75/100 = `30

\ Unit cost is `30
Gross margin = Unit price – Unit cost
= `40 – 30
= `10

Q16. Explain the disadvantages of skimming price method ? (TBQ) (3 marks)
Ans.
(i) The product will not sell if competitors introduce similar products at a lesser price.
(ii) It is not a viable option if there are strict legal and government regulations.

Q17. What are the conditions for using price skimming strategy. (4 marks)
Ans. Following conditions are must for using price skimming strategy :
(i) The product must be highly distinctive and demand for that product must be very inelastic. The high introductory price can be charged only for unique products and the products for which easy substitutes are not available. Customers pay high price for the product for its check and uniqueness.
(ii) The company must be able to maintain its uniqueness for sometime. If the product can be easily copied then price skimming will not bring revenue for a longer time.
(iii) To use price skimming strategy there must be customers in the market who value the uniqueness of the product and are ready to pay high prices. For this a class market segment is necessary.