ACCA Performance Management (F5) Certification Practice Exam

What is one of the three main approaches to pricing?

1. Demand-based approach

2. Asset-based approach

3. Volume-based approach

4. Profit-based approach

The correct answer is: Demand-based approach

The demand-based approach to pricing is centered on the consumer's perceived value and willingness to pay for a product or service. This strategy involves analyzing how much customers are willing to spend, which can vary based on market conditions, trends, and the overall demand for the product. It allows businesses to adjust their pricing in accordance to customer demand while maximizing revenue potential. By focusing on what the marketplace can bear, businesses often use tactics such as discounts, premium pricing for unique products, or even dynamic pricing strategies that change in real-time based on demand fluctuations. This approach is particularly useful in industries with high competition or when launching new products, where understanding consumer behavior can provide a competitive advantage. The other options, while valid approaches in different contexts, do not specifically prioritize the consumer's reaction to price changes in the same way as the demand-based approach does. Asset-based and volume-based approaches tend to focus more on the costs to produce or the quantities sold rather than on consumer willingness to pay, while the profit-based approach centers on target profit margins rather than directly adapting to consumer demand.