In this method of pricing, goods are sold at higher prices so that fewer sales are needed to break even. It also helps the company in recovering the research and development costs which are associated with the development of a new product. This method of pricing is:

Question

‘An affluent individual who provides capital for a business start-up and early stage companies having a high-risk, high-return matrix usually in exchange for convertible debt or ownership equity.’
(i) Identify the source to raise finance available to an entrepreneur discussed in the above lines.
(ii) State any four features of the source of raising finance discussed in (i) above.

Answer 1

A strategy involving a high initial price for new or innovative products, known as Creaming pricing or Price Skimming, targets consumers willing to pay a premium for early access. This method aids in:
Recouping substantial research and development expenditures.
Achieving swift profitability with a reduced sales volume.
Cultivating a high-value brand perception for the product.Alternative Strategies:
Penetrating pricing: Sets a low initial price to rapidly capture market share.
Cost-plus pricing: Adds a predetermined markup to production costs.
Variable pricing: Adjusts prices for individual customers based on factors like demand or negotiation.Therefore, the appropriate designation is (D) Creaming pricing.

In this method of pricing, goods are sold at higher prices so that fewer sales are needed to break even. It also helps the company in recovering the research and development costs which are associated with the development of a new product. This method of pricing is:

The Correct Option is D

Solution and Explanation

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