I. Answer the following questions:

1. What is meant by competitive pricing?

2. Why do shops have sales?

3. Why might penetration pricing be a good price strategy to use when launching a new brand of yogurts?

4. Mobile phone networks have used price creaming strategies when setting prices. Explain what this means.

5. What is meant by cost based pricing?

II. Match the terms with their definitions:

1. Competition based pricing	A. setting an initial low price for a new product so that it is attractive to customers. The price is likely to be raised later as the product gains more market share
2. Cost plus pricing	B. setting a price based on an analysis of the market
3. Creaming or skimming	C. fixing a price by adding a percentage profit margin to the cost of production of the good or service
4. Market orientated pricing	D. the extra which is added to the cost of a product to cover the profit to be made
5. Mark-up or profit margin	E. setting a price based on the charged by competitors for similar products
6. Penetration pricing	F. the percentage added to the cost of production which equals the profit on the product
7. Price discrimination	J. selling product at a high price, sacrificing high sales in order to earn high profits
8. Profit margin	I. setting a different price for the same product in different segments of the market

III. Give synonyms to the words and expressions from the text:

Effect, keep away from, method, pleasant-looking, example/case, planning of an action, special features, region, part, obtain/get, at the beginning, let.

IV. Render the text in English:

Установить цену нового товара трудно, так как у менеджеров мало данных для оценки потребительского спроса. Чем более новаторский характер имеет товар, тем сложнее оценить реакцию потребителей до появления товара на рынке. При установлении цен на новые товары используют два вида стратегий: «снятие сливок» и «проникновение на рынок».

При стратегии «снятия сливок» устанавливают высокую цену, предусматривая ее возможное снижение по мере появления на рынке конкурентов. Такая стратегия наиболее эффективна, если спрос на товар неэластичен, а компания пользуется патентной защитой.

В рамках стратегии «проникновения на рынок» компания устанавливает низкую цену на новый товар, чтобы предотвратить приход на рынок конкурирующих товаров. Это имеет смысл, если товар не защищен патентом, а спрос на него эластичен. Такой стратегии придерживалась компания «Bausch&Lomb», выйдя на рынок с мягкими контактными линзами в начале 70-х годов. Она проводила агрессивную ценовую политику, устанавливая в отрасли цены на 50% ниже обычных. Когда ее главный конкурент компания «Cooper-Vision» также понизила цены на свои линзы, «Bausch&Lomb» в ответ еще больше снизила цены – до 10-15 долларов.

V. Give a summary of the text. The problem of inflation

Of the large number of definitions of inflation to be brought forward by economists, the simplest and most widely understood is that inflation is a period of rising prices. Further consideration though, reveals that in the United Kingdom some prices have reduced since the Second World War, the examples are color television sets, calculators, etc. Does this mean that there is no inflation? The answer, obviously, is ’’no’’; the measurement of inflation depends upon the general price level and it is perfectly possible for the general price level to rise while specific prices fall.

The general price level must therefore be a form of average. The normal method of calculation is by the use of price index. The best known price index, and the one usually chosen to indicate the level of inflation, is the Index of Retail Prices.

Further points arising from the index are as follows:

• The Inflation Rate

The inflation rate can be calculated by dividing the change in the index of retail prices over the last year by the starting index, and multiplying the result by 100. If we analyze the following table, we can make any calculations.

General Index of Retail Prices in the United Kingdom

Year	Jan.	Feb.	Mar.	Apr.	May	June
1977	172.4	174.1	175.8	180.3	181.7	183.8
1978	189.5	190.6	191.8	194.6	195.7	197.2
1979	207.2	208.9	210.6	214.2	215.9
Year	July	Aug.	Sept.	Oct.	Nov.	Dec.
1977	183.8	184.7	185.7	186.5	187.4	188.4
1978	198.1	199.4	200.2	201.1	202.5	204.2
1979

T he calculation for May 1979 is: Inflation Rate =

• The purchasing power of the pound

Until the middle 1960s the rate of inflation was relatively low: 2-3 per cent per annum. So-called creeping inflation took place. Economists found no reason for alarm in this. In fact, after the period of depression between the wars, when for a time prices fell, some commentators were enthusiastic over rising prices. It became generally accepted in economic literature that a period of gradually rising prices was a good thing since it made businessmen optimistic about their chances of profit making. Inflation was welcomed as a sign of growth and prosperity, and no sense of danger prevailed since it was gradual. In more recent years an annual rate of 10 per cent has looked desirable but it highlights an obvious danger: when is gradual inflation no longer gradual? Most people would agree that 25 per cent per annum is too high a rate to be tolerable. But how much could be desirable? Accept inflation as a small friend and it can easily become a large and difficult enemy to deal with. The task is made more difficult by widespread disagreement over the causes of inflation.

Economists of the nineteenth and early twentieth centuries were convinced that a close link existed between the amount of money circulating within an economy and the level of its prices. Increases in the quantity of money were likely to lead to increases in prices. It was expressed in the formal way by the American economist Irving Fisher, using what became known as the Fisher Equation. The modern theorists are still maintaining that the quantity of money has a direct influence upon prices. However, one of the major problems is the uncertainty surrounding the time period which elapses between an increase in money and an increase in prices. Six months to a year and a half is not accurate enough.

During the years when monetarism was out of fashion, changes in the level of aggregate demand were used to explain why inflation occurred. Called demand inflation it takes place when supply cannot respond (i.e. when most of all resources are already employed) and leads to a rise in prices instead of to extra output. Cost inflation assumes that the collective upwards “push” of costs is sufficient to raise the general level of prices even though there has been no noticeable increase in the level of aggregate demand. In order to grasp the idea of cost inflation it is necessary to distinguish between costs in total and costs per unit of output. For example, wage rates – the rates paid to each employee – can rise and yet the wage element in each unit of output can still fall, provided that output per man rises. In such a situation any extra payments are provided for by extra sales. Then inflation is not fueled, since more output is forthcoming and costs per unit should not rise. However, in markets for labor resources the granting of one group often leads to demands that such deals be extended to other groups even though no extra productivity is forthcoming. And that is a source of cost inflation. Yet another explanation for inflation, bottleneck inflation, is a close relative of both demand and cost inflation. Bottleneck inflation assumes rising costs and rising prices long before all resources are fully employed. The basis for this assumption is that specific shortages occur in some areas – bottleneck areas – of the economy where demand is unusually heavy.

The effects of inflation can be classified at three levels: international, insular and personal. Let us examine each in turn.

• International Aspects of Inflation

By definition, trading nations function within an international community. In the international field, inflation rates have to be identical between all trading partners if trading flows are to remain undisturbed. In a world where most governments are making efforts to reduce their domestic rates of inflation, the rate of inflation in a country has come to have particular international significance. The community which lives by trading in finance regards its government’s record with regard to inflation rate as an indication of its ability to control the domestic economy. When inflation rates exceed the tolerances allowed for by a government, selling of that country’s currency often takes place. The currency consequently depreciates. The effect of this is to make inflation even worse, especially if the country concerned is a major importer of raw materials and semi-finished goods. Inflation gets worse because, when a currency floats downwards or is devalued, import prices rise. When disparate rates of inflation exist between nations, cooperation in the monetary field becomes extremely difficult.

• Insular Aspects of Inflation

Consumers soon become accustomed to inflation. The habits of saving for consumption are soon forgotten. As far as consumers are concerned the immediate purchase of goods, especially consumer durables, is the rational course – they have developed inflationary expectations. This means that they expect the present inflation to continue, and perhaps, even to get worse. In such a situation the obvious line of action is to buy now before the price rises. Of course, that only fires inflation. The other aspect is that when inflation persists it becomes increasingly difficult for businessmen and investors to calculate real rates of return on capital expenditures.

• Personal Aspects of Inflation

Inflation influences the behavior of individuals within an economy. Those who depend upon fixed sources of income find that the real value of their income flow is diminished. But there are others who can take advantage of inflation. In times of inflation fixed debt tends to diminish in significance. Hence those who have mortgages find that their incomes rise but the repayments do not and the real cost of borrowing diminishes. Vast numbers thus have at least some vested interest in continued inflation. Yet another way in which inflation affects the behavior of individuals is that it encourages them to find inflation-proof outlets for accumulated funds. Those commodities in fixed, or almost fixed, supply tend to increase in price ahead of the general rate. Such “hedges against inflation” enable a person to escape the worst rigors of an unfavorable economic climate.

The above gives the impression that causes of inflation are simple to understand and easy to regulate. This is far from the truth. In practice many governments seem powerless to reduce inflation to manageable rates. This is probably because real-life inflations are caused by a variety of factors which almost by chance coincide.

TASKS