ST10028294_NP SITHOLE

19/10/2022

INTRODUCTION TO
MARKETING THEORY
AND PRACTICE
MAKT5112
DMG1 GROUP 2
Q u e s ti o n 1

Q.1.1.1. Massimo creates premium, user-centric technology that

c h a l l e n g e s m a r k e t c o n v e n ti o n s a n d t h e i n d u s t r y s t a t u s q u o . F o u n d e d
i n 2 0 2 1 a r o u n d t h e b o l d N e v e r S e tt l e m a n t r a , M a s s i m o  consistently
c r e a t e s p r e m i u m d e v i c e s a n d s o ft w a r e t h a t p r o v i d e t h e b e s t u s e r
experience possible.

Q.1.1.2. The Ciao is a Massimo smartphone with a touchscreen

interface that combines a computer, Ciao Pad, digital camera, and
c e l l u l a r p h o n e . T h e C i a o r u n s t h e a n d r o i d o p e r a ti n g s y s t e m , a n d t h e
Ciao 8 Pro was released in 2022 with up to 1 TB of storage and a 12-
megapixel camera.

Q . 1 . 1 . 3 . T h e c o m p a n y ' s a b i l i t y t o d e v e l o p i n n o v a ti v e p r o d u c t s t h a t
s h a r e t h e s a m e o p e r a ti n g s y s t e m , s o ft w a r e , a n d a p p l i c a ti o n s i s a k e y
c o m p e ti ti v e a d v a n t a g e . T h i s r e d u c e s t h e r i s k , ti m e f r a m e , a n d c o s t s
associated with product development, allowing the company to
introduce a steady stream of new products while staying ahead of
c o m p e ti t o r s . A c c o r d i n g t o t h e w e b s i t e I n n o v a ti o n E x c e l l e n c e ,
M a s s i m o  ' s i n n o v a ti v e s t r a t e g y o f d e v e l o p i n g p r o d u c t s t h a t
complement each other strengthens customer loyalty and helps build
a b a r r i e r t o c o m p e ti ti o n .

Massimo h a s a s i g n i fi c a n t c o m p e ti ti v e a d v a n t a g e t h a n k s t o a n
ecosystem of suppliers, developers, and business partners. The
company owns chip manufacturers, controls manufacturing, adheres
t o e x t r e m e l y s t r i c t s o ft w a r e s t a n d a r d s , a n d o p e r a t e s i t s o w n r e t a i l
l o c a ti o n s . D e a l s w i t h m a j o r m u s i c a n d e n t e r t a i n m e n t c o m p a n i e s
provide a plethora of media for all the company's products. It also
h a s a c o m m u n i t y o f o v e r s i x m i l l i o n i n d e p e n d e n t s o ft w a r e
developers who work on Massimo products. This gives Massimo
complete control over the product development, manufacturing, and
m a r k e ti n g p r o c e s s e s , w h i c h c o m p e ti t o r s fi n d d i ffi c u l t t o m a t c h .

Q . 1 . 1 . 4 T o u n d e r s t a n d i t s k e y m a r k e ti n g s t r a t e g i e s f o r M a s s i m o 
p r o d u c t s , w e m u s t fi r s t u n d e r s t a n d M a s s i m o  ' s t a r g e t a u d i e n c e .
Massimo 's target audience consists of middle- and upper-class
users who are willing to pay more for products that provide an
e x c e p ti o n a l u s e r e x p e r i e n c e . T h i s m e a n s t h a t t h e s e c u s t o m e r s h a v e
more disposable income and are willing to pay more for products as
expensive as Massimo's.

GEOGRAPHIC REGIONS: Urban

GENDER: All
AGE: 20-45
INCOME LEVEL: High

Q.1.2. ECONOMIC ENVIRONMENT: Massimo Inc revenue in 2021 was

lower than in 2022 due to economic factors. Revenue growth in 2022
i s e x p e c t e d t o b e 1 0 % h i g h e r . D u r i n g t h i s ti m e , s a l e s o f t h e C i a o 8
Plus and Ciao Pad skyrocketed. Massimo c o m p u t e r s h a v e b e n e fi t e d
from the Ciao Pad. Personal computer sales fell by about 8% in 2022.
T h e s o ft w a r e i n t h e n e w C i a o s m a r t p h o n e h a s b e e n u p d a t e d .
Massimo TV's 40GB capacity has been increased to 160GB in
September 2022. The Ciao Notebook was upgraded by replacing the
c o l d c a t h o d e fl u o r e s c e n t l a m p w i t h a m e r c u r y - f r e e L E D . B e c a u s e o f
the frequent changes in the products, consumers purchased more.

POLITICAL ENVIROMENT: Massimo has invested R10, 397,219,20 in

p o l i ti c a l a c ti v i ti e s s i n c e 2 0 2 1 . T h e c o s t c a n n o t b e d e t e r m i n e d
p r e c i s e l y b e c a u s e s t a t e - l e v e l r e p o r ti n g i s i n s u ffi c i e n t a n d c a n b e
m i s l e a d i n g . I t h a s n o t m a d e i t s p o l i ti c a l c o n t r i b u ti o n s p u b l i c . I t i s a
m e m b e r o f t h e R e t a i l I n d u s t r y L e a d e r s A s s o c i a ti o n ( R I L A ) a n d s e r v e s
as a retail industry solicitor. They are major supporters of the
A m e r i c a n E l e c t r o n i c s A s s o c i a ti o n ( A E A ) . M a s s i m o  deals with
s o p h i s ti c a t e d e l e c t r o n i c e q u i p m e n t , s o i t p r i m a r i l y r e p r e s e n t s t h e
technology segments.

T h i s m o d i fi e s g o v e r n m e n t s a t t h e s t a t e , f e d e r a l , a n d i n t e r n a ti o n a l
l e v e l s ; i t p r o v i d e s b u s i n e s s o p p o r t u n i ti e s a n d c a p i t a l a c c e s s , a s w e l l
as a variety of business services and networking programs.

CULTURAL ENVIRONMENT: Massimo Inc's advanced technologies are

a i m e d a t y o u n g e r g e n e r a ti o n s . C i a o s m a r t p h o n e s , t a b l e t s , a n d
notebook computers are available worldwide. The company's target
audience includes every segment of society, both young and old.
T h e y d e s i g n e d t h e g a d g e t s , s o ft w a r e , a n d c o l o r s a c c o r d i n g l y . T h i s
type of target market generates more revenue. Most of them in
China and the US use Massimo Inc products ranging from the Ciao
Pad to the Ciao smartphones. I hope it will be the Ciao Pad in future
g e n e r a ti o n s .
Q u e s ti o n 2

Q . 2 . 1 . B e h a v i o r a l s e g m e n t a ti o n i s t h e p r o c e s s o f c a t e g o r i z i n g a n d
grouping customers based on their behaviors. These behaviors
include the products and content they consume, as well as the
frequency with which they interact with an app, website, or
business.

Massimo's market segment also includes behavioral variables from

i t s t a r g e t m a r k e t . I t i s m a d e u p o f a tti t u d e s , b e h a v i o r s , r e s p o n s e s ,
and product knowledge.
Loyalty Level: 'Hardcore loyal' and ‘switchers'
B e n e fi t s o u g h t : S e l f - e x p r e s s i o n , s p e e d o f s e r v i c e , a d v a n c e d f e a t u r e s
and tools, a sense of belonging and achievement.

Q.2.2. Massimo t a r g e ti n g s t r a t e g i e s e n t a i l i d e n ti f y i n g t h e m o s t
a p p e a l i n g s e g m e n t s f o r t h e c o m p a n y . T h i s s t a g e e n t a i l s s e l e c ti n g
s p e c i fi c g r o u p s i d e n ti fi e d d u r i n g t h e s e g m e n t a ti o n p r o c e s s t o w h o m
Massimo c a n s e l l t h e i r p r o d u c t s . T h e c o m p a n y p o s i ti o n s i t s b r a n d
a s a p r e m i u m p r o v i d e r o f h i g h - q u a l i t y , a d v a n c e d f u n c ti o n s a n d
c a p a b i l i ti e s i n i t s p r o d u c t s a n d s e r v i c e s .

Massimo's target customers are wealthy individuals who are willing

to spend more money on technology products and services with
a d v a n c e d c a p a b i l i ti e s , f u n c ti o n s , a n d d e s i g n s . Y e a r s o f a n a l y z i n g
M a s s i m o  ' s c u s t o m e r s ' c h a r a c t e r i s ti c s r e v e a l e d t h a t m a j o r i t y o f
them value quality, performance, and design of tech products and
services over price.

Q . 2 . 3 . M a s s i m o ' s s t r a t e g y o f p o s i ti o n i n g i t s b r a n d t o c r e a t e a n
e m o ti o n a l c o n n e c ti o n w i t h i t s c u s t o m e r s t h r o u g h e x c e p ti o n a l
e x p e r i e n c e s i s a n e x c e l l e n t o n e , p a r ti c u l a r l y i n t h i s c o m p e ti ti v e
industry. In the same way, Massimo e m p l o y s a c o m p e ti ti v e
p o s i ti o n i n g s t r a t e g y . B e c a u s e t h e t e c h n o l o g y i n d u s t r y i s s o
c o m p e ti ti v e , M a s s i m o  makes it a point to constantly invest in R&D
a n d i n t r o d u c e n e w p r o d u c t s a n d f e a t u r e s . I t c o n ti n u e s t o d e v e l o p
unique technologies for the brand that cannot be replicated
elsewhere.

Q.2.4. Habitual decision making.

I n t e r m s o f c o n s u m e r - b r a n d r e l a ti o n s h i p s , m o b i l e d e v i c e s a s a
p r o d u c t c a t e g o r y a s s i s t t h e u s e r i n e s t a b l i s h i n g i t s i d e n ti t y , w h i c h
is especially true for Massimo . As a result, such users' decision-
m a k i n g i s m o r e h a b i t u a l ( u n c o n s c i o u s , a u t o m a ti c ) t h a n c o g n i ti v e
( r a ti o n a l , d e l i b e r a t e ) . L o w i n v o l v e m e n t i s r e p r e s e n t e d b y h a b i t u a l
decision-making, in which users do not consider purchasing the
c o m p e ti t o r ' s p r o d u c t o r d o n o t i n v e s t ti m e a n d e n e r g y i n
r e s e a r c h i n g k e y p h o n e c h a r a c t e r i s ti c s a n d s t r e n g t h s .

These customers do not think about their purchase—not because it

is unimportant or trivial, but because they have already decided
which product or brand will best meet their needs. They do not need
t o d e v o t e a d d i ti o n a l t h o u g h t o r c o n s i d e r a ti o n b e c a u s e t h e i r n e e d s
are met (or exceeded). From the standpoint of a marketer, this is
i d e a l b e c a u s e m a r k e ti n g i n v e s t m e n t s h a v e p a i d o ff i n t h e a c q u i s i ti o n
a n d r e t e n ti o n o f t h i s c u s t o m e r , a s e v i d e n c e d b y t h e i r o n g o i n g
loyalty.

C u s t o m e r l o y a l t y d e v e l o p s o v e r ti m e w h e n a c o n s u m e r h a s
c o n s i s t e n t , p o s i ti v e i n t e r a c ti o n s w i t h a p r o d u c t , b r a n d , o r c o m p a n y .
T h a t i s , i t i s c o n ti n u o u s a n d r e fl e c t s t h e b r e a d t h o f v a l u e i n a l l
i n t e r a c ti o n s , s u c h a s e x c h a n g e , u s e , a n d e x p e r i e n c e .
QUESTION 3

Q . 3 . 1 . C O R E P R O D U C T : T h e c o r e p r o d u c t s a ti s fi e s t h e m o s t b a s i c
need of the customer.
 The Ciao smartphone will be crucial if Massimo is to become
t h e w o r l d ' s fi r s t t h r e e - t r i l l i o n - d o l l a r c o m p a n y .

TANGIBLE PRODUCT: The tangible product becomes important once

t h e c o r e p r o d u c t h a s b e e n i d e n ti fi e d . T a n g i b l e m e a n s " p e r c e p ti b l e
through touch," so tangible features of a product are those that can
be touched and held. This concept can be expanded to include
p r o d u c t c h a r a c t e r i s ti c s t h a t d i r e c t l y i n fl u e n c e t h e b u y e r ' s
purchasing decision. The customer will use the following product
elements to evaluate and decide product features, quality level,
brand name, styling, and packaging. Every product contains these
components to varying degrees, and they are what the consumer
c o n s i d e r s w h e n c o m p a r i n g a l t e r n a ti v e s .

 P r o d u c t s a r e g o o d s o r s e r v i c e s t h a t c a n b e c l a s s i fi e d a s
tangible or intangible (Iacobucci, 2013), with a range from

completely tangible to completely intangible. It is no surprise

that the world's most 'intangible' businesses, like Massimo ,
a r e e a s i l y i d e n ti fi e d . T h e y h a v e v e r y r e a l m a r k e t v a l u a ti o n s o f
less than R10 million, the majority of which is related to
intellectual property assets such as patents, trademarks, and
trade secrets, as well as licenses.
AUGMENTED PRODUCT: Every product is supported by a variety of
services. The tangible product and all the services that support it
comprise the augmented product. The buyer frequently expects
these services and would reject the tangible product if they were
unavailable.
 Massimo products, including Massimo TV, ciao touch, ciao
smartphone, and Ciao Pad, would be enhanced with Massimo
TV+ for a year. So, when a customer purchase any of these
d e v i c e s , t h e c u s t o m e r r e c e i v e s t h e b e n e fi t o f u s i n g t h e
Massimo TV+ service for free for a year. Massimo 's
i n n o v a ti v e s t r a t e g y o f d e v e l o p i n g p r o d u c t s t h a t c o m p l e m e n t
each other strengthens customer loyalty and helps build a
b a r r i e r t o c o m p e ti ti o n .

P O T E N T I A L P R O D U C T : A l l f u t u r e a u g m e n t a ti o n s a n d i m p r o v e m e n t s t o
t h e p r o d u c t a r e i n c l u d e d i n t h e p o t e n ti a l p r o d u c t . T h i s m e a n s t h a t
t h e p r o d u c t m u s t b e c o n s t a n t l y i m p r o v e d t o c o n ti n u e t o s u r p r i s e a n d
delight customers.
 M a s s i m o ' s n e w h i g h - e n d fl a g s h i p s m a r t p h o n e s , t h e C i a o 1 0 P r o
and Ciao 10 Pro+, will be available alongside the lower cost
Ciao 10 and Ciao 10 Plus. The Ciao 10 Pro models have far more
features than the Ciao 10 models, including improved camera
t e c h n o l o g y , b e tt e r d i s p l a y c a p a b i l i ti e s , a f a s t e r A 1 6 c h i p , a n d
more.

P R O D U C T I M A G E : C o n s u m e r p e r c e p ti o n s a n d a tti t u d e s t o w a r d

a n e x i s ti n g o r p r o p o s e d n e w p r o d u c t
 Another important aspect of Massimo's design is its simplicity.
I t i s m o r e t h a n j u s t b e i n g fl a s h y o r e y e - c a t c h i n g . M a s s i m o ' s
products have always been designed to be clean, simple, and
s t r a i g h tf o r w a r d .
 E v e r y t h i n g f r o m t h e p h o n e ' s s h a p e t o t h e b u tt o n d e s i g n , c o l o r
o p ti o n s , a n d f o n t s u s e d h a s c l e a n a n d s i m p l e l i n e s .
Furthermore, when you turn on the device, the interface echoes
 that minimalism and creates a strong cohesive experience for
the user.

Q.3.2. Reusable Packaging.

Over the course of several years, reusable packaging is used
m u l ti p l e ti m e s , o ft e n f o r t h e p u r p o s e o f t r a n s p o r ti n g p r o d u c t s . I t i s
built to last and is simple to repair and clean. Pallets, handheld
containers, drums, tanks, boxes, and straps are examples of reusable
packaging.

 A s a r e s u l t o f o u r e ff o r t s t o r e d u c e t h e u s e o f p l a s ti c i n
p a c k a g i n g , 9 3 % o f t h e p a c k a g i n g i s m a d e o f fi b e r .

 T h e w o o d fi b e r i s 1 0 0 % r e c y c l e d a n d s o u r c e d r e s p o n s i b l y .

 Fibre packaging contains 72% recycled content.

S e tti n g u p a c o o r d i n a ti o n p r o c e s s i s c r i ti c a l t o m a k i n g p a c k a g i n g
reuse feasible. Businesses must establish a system with end-users of
their products to return their packaging.

R e u s a b l e p a c k a g i n g i s b u i l t t o l a s t f o r a l o n g ti m e . W h e n i t c a n n o
l o n g e r b e u s e d e ff e c ti v e l y , i t s h o u l d i d e a l l y b e r e c y c l a b l e ,
p r e v e n ti n g w a s t e f r o m b e i n g d i s p o s e d o f i n a l a n d fi l l . A d v a n t a g e s
for reusable packaging.

 E c o n o m i c b e n e fi t s
 S u s t a i n a b i l i t y b e n e fi t s
 S o c i a l b e n e fi t s
QUESTION 4

Q.4.1. Market Skimming.

Massimo h a s m o d i fi e d t h e s k i m m i n g s t r a t e g y . R a t h e r t h a n
launching their products at a high price and then lowering them
later, Massimo establishes a price and then defends it by
s i g n i fi c a n t l y i n c r e a s i n g t h e v a l u e o f t h e i r p r o d u c t s i n s u b s e q u e n t
i t e r a ti o n s .

For example, the average sales price of the Ciao has remained
remarkably stable over the last six years, with the subsidized price
r e m a i n i n g a t R 3 5 8 5 , t w e n t y - fi v e a n d t h e u n s u b s i d i z e d p r i c e h o v e r i n g
around R11652,06.

Q.4.2.
STEP 1: DETERMINE THE PRICING GOAL:

P r i c i n g c a n h e l p a c o m p a n y a c h i e v e i t s p o s i ti o n i n g o b j e c ti v e s . I f t h e
c o m p a n y i s f o r c e d t o w o r k b e y o n d i t s c a p a c i t y o r f a c e s ti ff
c o m p e ti ti o n , t h e p r o d u c t ' s p r i c e m u s t c o n s i d e r t w o f a c t o r s . V a r i a b l e
c o s t s a n d a p o r ti o n o f fi x e d c o s t s .

STEP 2: DETERMINING DEMAND:

E v e r y p r i c e l e v e l h a s a d e fi n i t e d e m a n d f o r a p r o d u c t , a c c o r d i n g t o
economic law. This law, however, is subject to the nature of the
p r o d u c t i n q u e s ti o n . F o r e x a m p l e , d e m a n d f o r l u x u r y g o o d s r i s e s a s
p r i c e s r i s e , w h e r e a s d e m a n d f o r c o m m o d i ti e s f a l l s a s p r i c e s r i s e .

Companies must plan the demand curve while keeping price

s e n s i ti v i t y i n m i n d . T h e d e m a n d c u r v e c a n b e e s ti m a t e d b y a n a l y z i n g
historical data or performing price-related tests. A company can
g a i n a b e tt e r u n d e r s t a n d i n g o f h o w m u c h c o n s u m e r s a r e w i l l i n g t o
p a y f o r a s p e c i fi c p r o d u c t o r s e r v i c e t h i s w a y .

STEP 3: COST ESTIMATION - ENSURING PROFITS:

C o m p a n i e s m u s t m a n a g e t h e i r c o s t s t o m a i n t a i n a h e a l t h y p r o fi t
m a r g i n t o c o n ti n u e o p e r a ti n g s u c c e s s f u l l y . T o a c c o m p l i s h t h i s , a
c o m p a n y m u s t e s t a b l i s h a p r o d u c ti o n l e v e l a t w h i c h i t c a n m a i n t a i n
i t s fi x e d a n d v a r i a b l e c o s t s .

I n g e n e r a l , a s p r o d u c ti o n l e v e l i n c r e a s e s , t h e c o s t p e r u n i t
d e c r e a s e s . T h i s i s d u e t o t h e l e a r n i n g c u r v e e ff e c t t h a t c o m e s w i t h
m o r e e x p e r i e n c e . S o , t o p r o fi t f r o m t h i s s t r a t e g y , y o u m u s t a l l o c a t e
costs and set the price accordingly.

STEP 4: EXAMINE THE COSTS, PRICES, AND OFFERS OF COMPETITORS:

E v e r y b u s i n e s s m u s t k e e p a c l o s e e y e o n i t s c o m p e ti t o r s . T h i s i s
e s p e c i a l l y t r u e w h e n i t c o m e s t o p r i c i n g , c o s t s , a n d p r o m o ti o n a l
o ff e r s . C o m p a n i e s m u s t u n d e r s t a n d h o w m u c h t h e i r c o m p e ti t o r s '
prices can vary in comparison to their own. They must also be
p r e p a r e d t o a d j u s t t h e i r o w n o ff e r s i n r e s p o n s e t o t h e s e
fl u c t u a ti o n s .

STEP 5: DETERMINE YOUR PRICING STRATEGY:

There are several methods for determining the price of your goods
or services. These are the most well-known:

 With the markup method, you set a price based on your desired
p r o fi t l e v e l .
 The term "target return" refers to pricing based on the
company's desired ROI.

 S e tti n g a p r i c e b a s e d o n h o w m u c h y o u r c u s t o m e r s b e l i e v e y o u r
product or service is worth to them is a simple example of
perceived value.

T h e r e a r e a l s o a u c ti o n a n d g r o u p p r i c i n g m e t h o d s , b u t t h e y a r e
less common.

STEP 6: DETERMINING THE FINAL PRICE:

The preceding steps will assist you in determining a price, but the
fi n a l s a y b e l o n g s t o y o u r c u s t o m e r s . C o n d u c t m a r k e t r e s e a r c h t o
e n s u r e t h a t y o u a r e n o t c h a r g i n g t o o l i tt l e o r t o o m u c h f o r y o u r
products or services.
Q.4.3. ETHICAL ISSUES WHEN SETTTING PRICES IN SOUTH

AFRICA.

S o u t h A f r i c a ' s b u s i n e s s e t h i c a l c u l t u r e w a s a n d c o n ti n u e s t o b e
s h a p e d b y a v a r i e t y o f s o c i a l a n d p o l i ti c a l i n fl u e n c e s , i n c l u d i n g
i t s c o l o n i a l h i s t o r y , t h e l e g a c y o f A p a r t h e i d , a n d t h e e l e c ti o n o f
t h e fi r s t d e m o c r a ti c g o v e r n m e n t i n 1 9 9 4 , f o l l o w i n g w h i c h
President Nelson Mandela's government began the process of
r e d r e s s i n g t h e r a c i a l i m b a l a n c e s a n d i n e q u a l i ti e s c a u s e d b y
Apartheid. Since 1994, business ethics has received a great deal
o f c o r p o r a t e a tt e n ti o n .
T h e r e i s w i d e s p r e a d a g r e e m e n t t h a t m a r k e ti n g s t r a t e g i e s m u s t n o t
violate values such as honesty, transparency, and autonomy. As a
result, the main point of pricing ethics is to establish a balance
o f p o w e r ( v i a i n f o r m a ti o n ) b e t w e e n t h e p r o d u c e r a n d t h e
c o n s u m e r . P r o d u c e r s o ft e n h a v e t h e u p p e r h a n d i n a c o m p l e t e l y
free market because they control their products and processes.
T h i s c o u l d l e a d t o u n e t h i c a l p r a c ti c e s ( u s i n g c h e a p o r h a r m f u l
m a t e r i a l s , l y i n g a b o u t b e n e fi t s , a n d s o o n ) t h a t a r e h a r m f u l t o
society.
1.PRICE FIXING: Collusion at its worse

 A p r i c e fi x i n g a g r e e m e n t i n v o l v e s a g r o u p o f p e o p l e o n t h e
same side of a market agreeing to buy or sell a good or
s e r v i c e a t a fi x e d p r i c e .
 T y p i c a l l y , c o m p e ti ti o n f o r c o n s u m e r s a m o n g t h e s e
p a r ti c i p a n t s d r i v e s d o w n p r i c e s f o r g o o d s a n d s e r v i c e s .
 Consider a world in which every ice cream shop in South
Africa declared that all single scoops were now R268,10.
Consumers would lose out because we would seek
a l t e r n a ti v e s o r p a y e x o r b i t a n t p r i c e s b e c a u s e w e c o u l d n o t g o
to another neighborhood joint to compete with another's
u n r e a s o n a b l e p r i c e s / l o w q u a l i t y o ff e r i n g .

2 . F a v o r i ti s m i n b i d r i g g i n g
 This is more for the proposal crows, but bid rigging involves
promising a commercial contract to one group while making it
a p p e a r a s i f m u l ti p l e p a r ti e s h a d t h e o p p o r t u n i t y t o b i d .
 Because of the number of bids and contracts the government
deals with on a yearly basis, this is not only a moral no-no,
but it is also one of the few that the government follows up
o n , p a r ti c u l a r l y w i t h i n t h e i r o w n r a n k s .
 T h i s p r a c ti c e s i g n i fi c a n t l y h a r m s c o n s u m e r s b e c a u s e t h e b e s t
producer is not always given the job.
 T r a d e r s m a y a l s o u s e p r i c e r i g g i n g t o a r ti fi c i a l l y i n fl a t e t h e
p r i c e o f a s t o c k t o a tt r a c t m o r e i n v e s t o r s . A s n e w i n v e s t o r s
p u r c h a s e s h a r e s , s h a r e p r i c e s r i s e u n ti l t h e m a n i p u l a t o r s
s e l l , c a u s i n g s h a r e p r i c e s t o f a l l . O T C B u l l e ti n B o a r d s h a r e s ,
a l s o k n o w n a s p e n n y s t o c k s , a r e p a r ti c u l a r l y s u s c e p ti b l e t o
p r i c e m a n i p u l a ti o n .

3 . P r i c e d i s c r i m i n a ti o n : F a v o r i ti s m i n p r i c i n g
  P r i c e d i s c r i m i n a ti o n i s t h e p r a c ti c e o f s e l l i n g t h e s a m e
p r o d u c t a t d i ff e r e n t p r i c e s t o d i v e r s e g r o u p s o f c u s t o m e r s ,
typically based on the highest price they are willing to pay.
 T h e p r a c ti c e a l s o m a n i f e s t s i t s e l f i n t h e c o n c e a l m e n t o f
lower-priced items from customers with a higher willingness
t o p a y . T h i s o n e i s a l i tt l e t r i c k y b e c a u s e i t i s s o c i a l l y
a c c e p t a b l e i n s o m e s i t u a ti o n s b u t n o t i n o t h e r s .
 P r i c e d i s c r i m i n a ti o n s t r a t e g i e s a r e u s e d i n m a n y i n d u s t r i e s ,
including the airline industry, the arts/entertainment
i n d u s t r y , a n d t h e p h a r m a c e u ti c a l i n d u s t r y . C o u p o n s , s p e c i fi c
discounts (e.g., age discounts), and loyalty programs are all
e x a m p l e s o f p r i c e d i s c r i m i n a ti o n .
 T h e a i r l i n e i n d u s t r y i s o n e e x a m p l e o f p r i c e d i s c r i m i n a ti o n .
C u s t o m e r s w h o p u r c h a s e a i r l i n e ti c k e t s s e v e r a l m o n t h s i n
advance typically pay less than those who purchase at the
l a s t m i n u t e . W h e n t h e r e i s a h i g h d e m a n d f o r a s p e c i fi c
fl i g h t , a i r l i n e s r a i s e ti c k e t p r i c e s i n r e s p o n s e .

4 . P r i c e s k i m m i n g : T i m e d i s c r i m i n a ti o n
 P r i c e s k i m m i n g o c c u r s w h e n a p r o d u c t i s i n i ti a l l y s o l d a t a n
exceedingly high price and then gradually reduced.
 The goal here is obvious; producers want to capture each
step on the demand curve; consumers willing to pay more buy
t h e p r o d u c t fi r s t , a n d t h e n e a c h d e c r e a s e i n p r i c e t r i g g e r s a
new group of purchases.
  This strategy is most common in the technology industry,
where some customers are willing to pay a premium for the
latest gadgets. Apple is a prime example, with prices
d r o p p i n g m o n t h s a ft e r a r e l e a s e a n d n e w i t e r a ti o n s o c c u r r i n g
e v e r y s i x t o t w e l v e m o n t h s . T h i s p r a c ti c e , l i k e p r i c e
d i s c r i m i n a ti o n , i s n o t i l l e g a l , b u t i f i t i s t o o o b v i o u s a n d n o t
t h o r o u g h l y a s s e s s e d , i t c a n r e s u l t i n a n e g a ti v e P R b a c k l a s h .
A p p l e r e c e i v e d a l o t o f c r i ti c i s m f o r s h o r t e n i n g t h e
p r o d u c ti o n c y c l e o n t h e l a t e s t i P a d , c a u s i n g t h e p r i c e s o f
older models to drop immediately.

5. Excessive pricing: Monopoly gouging

 T h e v a l u e t h a t c o n s u m e r s p l a c e o n a g o o d i s s o m e ti m e s m u c h
higher than the cost of producing that good. In such cases,
t h e r e i s d e b a t e o v e r w h e t h e r t h e c o r p o r a ti o n i s j u s ti fi e d i n
charging a much higher price that corresponds to the
perceived value.
 This can happen when there is a scarcity, such as the price of
f o o d o r f r e s h w a t e r a ft e r a h u r r i c a n e , o r w h e n a s p e c i fi c
p r o d u c t i s t h e o n l y o n e o f i t s k i n d a v a i l a b l e . P h a r m a c e u ti c a l s
and the patents that protect them are a good example.

 P r o d u c e r s i n t h e s e s i t u a ti o n s c a n c h a r g e e x o r b i t a n t f e e s , b u t
should they? I believe we can all agree that raising prices for
f o o d o r g e n e r a t o r s a ft e r a h u r r i c a n e i s w r o n g ( a n d s o m e
s t a t e s h a v e l a w s a g a i n s t i t ) , b u t m o s t s o ft w a r e c o s t s a r e l o w
in comparison to the value provided to customers.
 I n v a s t l y d i ff e r e n t c o n t e x t s , b u t m o r e b r o a d l y , s o m e c o n s i d e r
e x p l o i ti n g c o n s u m e r s ' n e e d s t o b e u n e t h i c a l , w h i l e o t h e r s
 believe it is an unavoidable result of a free market and a just
r e w a r d f o r i n n o v a ti o n .

T h e B o tt o m L i n e

Price controls set minimum and maximum prices for goods and
services, as opposed to the free market, where prices are
determined by supply and demand. Price controls, according to
governments and supporters, are necessary to make things more
convenient for both consumers and suppliers. Price controls allow
c o n s u m e r s t o a ff o r d e s s e n ti a l g o o d s a n d s e r v i c e s w h i l e a l s o a l l o w i n g
p r o d u c e r s t o r e m a i n p r o fi t a b l e . H o w e v e r , c r i ti c s c l a i m t h a t i t
f r e q u e n t l y h a s t h e o p p o s i t e e ff e c t , r e s u l ti n g i n a m a r k e t i m b a l a n c e
between supply and demand, as well as illegal markets.
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