1 a) Penetration pricing refers to a pricing strategy in which a company launches a product

at a low selling price.

This pricing approach is aimed at encouraging people to test the product, with the goal of
achieving quick market acceptance. This is typically used when a company launches a new
product to the market.

b) Price elasticity of demand assesses a consumer's responsiveness to a change

in the quantity desired of a product concerning a change in the price level. It is
calculated as the quotient of the percentage change in the price level and the
percentage change in the quantity required.

When the price elasticity of demand is elastic, the resulting PED is greater than one,
indicating that the change in the quantity required outweighs the percentage change
in the price level.

In a nutshell, price-elastic demand suggests a change in a product's price level will

result in a significant shift in the quantity demanded for the product.

c) Price elasticity of demand assesses a consumer's responsiveness to a change

in the quantity desired of a product concerning a change in the price level. It is
calculated as the quotient of the percentage change in the price level and the
percentage change in the quantity required.

When the price elasticity of demand is elastic, the resulting PED is greater than one,
indicating that the change in the quantity required outweighs the percentage change
in the price level.

In a nutshell, price-elastic demand suggests a change in a product's price level will

result in a significant shift in the quantity demanded for the product.

One factor that could explain why the demand for one brand of breakfast cereals
might be price elastic is the availability of a cheaper substitute.

When the price of a certain breakfast cereal increases, and a cheaper substitute is
available, then the consumer will prefer to buy the cheaper substitute, shifting the
demand from one brand of breakfast cereal to the cheaper substitute.

Another factor is that breakfast cereals may not be considered essential by some
consumers. Thus, an increase in the price of the product may force consumers to
stop consuming the product without facing any losses.

Therefore, two factors that could be reasons why demand for one brand of breakfast
cereals is price elastic are the existence of a cheaper substitute and its
importance.
d) The first factor the firm must consider is the price elasticity of demand. Price
elasticity of demand assesses a consumer's responsiveness to a change in the
quantity desired of a product concerning a change in the price level.

When the firm decides to implement competitive pricing, it has to lower its price to $
1.20 at minimum. This might be perceived by consumers as a decrease in the quality
of the product, especially when the price elasticity of demand is elastic. The change
in price level may lead to a significant change in the quantity demanded, thus the
price elasticity of demand must be considered.

Another factor to be considered is the change in the profit margin, given that the
cost of production is $1 per box, then decreasing the price level to $1.2 may cause a
decline in the profit ma

e) Price is a value set that is used to represent a product. The cost of a product or
service is defined as its price.

Pricing strategy, on the other hand, is an organization's approach to setting product

prices. It involves deciding on the appropriate pricing in accordance with market
conditions and consumer behavior.

In this problem, it is not a favorable idea to switch to a more competitive pricing

strategy.

Price penetration is the pricing approach used by the new competitor, which is
introduced by a supermarket. This suggests that the supermarket is willing to offer
the goods at the lowest possible price, and if Oatz wants to implement competitive
pricing, it must reduce its pricing to the lowest possible price, which may result in
losses for the company.

Furthermore, the product is already well-established and has a solid reputation for
quality. As a result, the brand must not be threatened by the new product and must
continue to offer high-quality breakfast cereals.

2a) Term "price skimming" stands for setting up higher prices for products that represent
something new or are upgraded versions of older products. The higher price is justified with
a significant amount of human, financial and other resources invested in research and
development of the product. Besides, this new product is better in its characteristics than the
older version of the product, or it solves some problems that customers did not have any
answers for so far.

b) Higher expenses for the development of the game. To develop new products,
the company usually has to invest its savings or has to find alternative sources of
funding. All invested human and financial resources are covered later when the
product is launched and sold on the market. For that reason, the price can seem too
high and unrealistic to customers at first. However, if that new game has different
characteristics than other games launched so far, is made using modern
technologies, and offers new and unique experiences to users, each customer is
going to find the price to be justified.

The interest of customers in the new game. It is obvious that for this type of
product, there is already a defined target market that waits for the moment when a
new product is going to be launched so they can purchase it. Since this is about the
exclusive line of products, there may be a limit of how many products are made. In
this case, the producer can allow themselves to set up a higher price for the product.
Since the demand is greater than the supply, surely producers can find customers
that are going to pay the demanded price. Also, the higher price is going to send the
message to customers that this product is unique and of high quality. The lower price
could arouse suspicion amongst customers about the real value of the product.

c) This is about a complete novelty on the market. Sometimes not even producer
is not aware of how much technology is required to develop a new product, in this
case, a video game. It requires a lot of money and time, which means that the
innovator cannot be sure whether the final product is even going to function or not. It
rarely happens that the first version of the product works without any issues.
Commonly, the producer has to fix the issues with the product several times during
the development, and in each new version, they find something that could
additionally improve the product. Only after several versions of fixing, testing and
fine-tuning, we get the desired product.

Higher product price is going to send the message to customers that this is about
a high-quality product. Customers are aware of the expenses of the production
process of technological products. Reason for that is that customers are always
looking for modern and more advanced products than what is currently available on
the market so they can stand out from their company. This means that producers
constantly have to look for new technologies, methods and tools to make new
products. In the end, it makes the price of the product higher then what it was until
now so the producer can cover their expenses and have some profit. Therefore, if
the customer sees a new video game on the market that is represented as the latest,
most modern version, but the price is the same as the previous version, they can get
suspicious about the credibility of the producer and the video game itself.

d) Cost-plus pricing strategy which functions by the following principle: producer

determines the exact amount of products that will be produced, then they evaluate
required expenses for the production and determine the profit they want to make by
selling the products. In the case of company X & Z, the producer is familiar with an
estimated number of potential customers so they can adjust the production quantity
to amounts they can sell. With that, they have to be careful when determining the
final price per product and make sure that at least all expenses will be covered and
the company is in positive zero. Maximum price level depends on the profit company
wants to achieve, and it can be adjusted. If the producer sets the profit goal too high,
the price will automatically be higher. The producer should always make sure that
the price is not too high when compared to the competition, so they don't lose
customers.
Psychological pricing strategy. This strategy is based upon various activities that
the producer is using to impact their customers and convince them to buy their
products. Company X & Z can try to have a psychological impact on their customers
because they have already identified them and know their characteristics, needs and
desires. Therefore, one approach can be to introduce a new video game as a
product that offers customers a different and new way of enjoyment. The second
approach can be to represent the game as an exclusive product that is available only
to a limited number of customers. Then, customers that were able to get access to
purchase the game will feel special compared to others that were equally interested
in buying but were not given the opportunity. In that case, most customers won't pay
attention to whether the price of the product is realistic or not.

e) I think that "price skimming strategy" is not the best option to determine the
prices of all games that X & Z makes.

This strategy should be used to determine the prices of products that represent
innovation in the market. Company X & Z cannot claim that every single game they
make is unique and innovative on the market. The fact is that there could be a similar
game available on the market that is cheaper or it turns out that X & Z copied a
game designed by another company. This could deeply disappoint customers of X &
Z. It could also cause the downfall of the reputation of the brand that X & Z created,
which would lead to losing loyal customers and a significant drop in profit.

I think that the company should determine prices that correspond to actual
investments and devotion that the company had in the development. If the product is
not innovative, and its production considers a lesser investment, then the company
should consider promotional pricing or a dynamic pricing strategy. If it is about a
product that is very common in the market and has huge competition, the company
should consider a competitive pricing strategy.