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Question 449 - CSCP discussion

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The purpose of price differentiation is to:

A.
reduce sales variability.
Answers
A.
reduce sales variability.
B.
clear out inventories.
Answers
B.
clear out inventories.
C.
increase total revenue.
Answers
C.
increase total revenue.
D.
increase customer loyalty.
Answers
D.
increase customer loyalty.
Suggested answer: C

Explanation:

Price Differentiation Definition: A strategy where a company charges different prices for the same product in different markets or segments.

Purpose: The main goal is to maximize revenue by capturing consumer surplus.

Outcomes:

Reduce Sales Variability (A): Not a direct goal of price differentiation.

Clear Out Inventories (B): Generally achieved through discounts and sales, not price differentiation.

Increase Total Revenue (C): By setting prices according to consumers' willingness to pay, firms can increase overall revenue.

Increase Customer Loyalty (D): While it might be a side benefit, it is not the primary objective.

Conclusion: The primary purpose of price differentiation is to increase total revenue by capturing maximum value from different market segments.

'Pricing Strategy: Setting Price Levels, Managing Price Discounts and Establishing Price Structures' by Tim J. Smith.

APICS Dictionary, 16th Edition.

asked 16/09/2024
Ana Santos
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