Chapter 12 Review PDF

1 Iyania Messinga Professor Holmes MK 341 A 26 October 2023 Chapter 12 Review Price competition is a key element in business success. It involves matching or beating competitors' prices in order to gain customers. To compete effectively on a price basis, a firm should aim to become the low-cost sel...

1 Iyania Messinga Professor Holmes MK 341 A 26 October 2023 Chapter 12 Review Price competition is a key element in business success. It involves matching or beating competitors' prices in order to gain customers. To compete effectively on a price basis, a firm should aim to become the low-cost seller of the product. Companies must have the flexibility to quickly change prices in response to competitors' actions. If competitors match or beat a company's price cuts, a price war may ensue. Nonprice competition is another important element in business success. It involves emphasizing factors other than price to distinguish a product from competing brands. These factors include distinctive product quality, excellent customer service, effective promotion, packaging, or other unique features. Nonprice competition is effective only if buyers can perceive these distinguishing characteristics and deem them important, and if the company extensively promotes the brand's distinguishing characteristics. Pricing objectives are goals that describe what a firm wants to achieve through pricing. Examples of pricing objectives include survival, profit, return on investment, market share, and cash flow. Achieving the objective of survival generally involves temporarily setting prices low, while the objective of profit maximization is difficult to measure. Return on investment pricing requires trial and error, and market share objectives need not depend on growth in industry sales. 2 Finally, cash flow objectives can help recover cash quickly, and status quo objectives help to stabilize demand for products. Finally, product quality objectives are important for a company's success. Attaining a high level of product quality is generally more expensive, but products and brands that customers perceive to be of high quality are more likely to survive in a competitive marketplace. By emphasizing price competition and nonprice competition, and developing pricing objectives that match the company. The importance of price in marketing varies depending on the type of product, target market, and purchase situation. Consumers perceive products with desirable features and characteristics to have great value, even if they are relatively expensive. Price can also become a factor for convenience as consumers are often willing to pay a higher price for products that save them time. Demand curves show that as prices fall, quantity demanded usually rises. However, for certain types of products, such as prestige products, quantity demanded may increase as price increases up to a certain point, before going back down. Demand can also fluctuate due to changes in buyers' needs, the effectiveness of other marketing-mix variables, the presence of substitutes, and the dynamic environment. Organizations must anticipate these fluctuations in order to develop new products and prices that meet customers' changing needs. Understanding the relationship between demand, cost, and profit is imperative for businesses. Marginal analysis is a way to examine what happens to a firm's costs and revenues when production (or sales volume) changes by a single unit. Fixed costs are those that do not vary with changes in the number of units produced or sold, while variable costs are those that do. The sum of the average fixed cost and the average variable cost is known as the total cost. 3 Marginal cost (MC) is the extra cost incurred by producing one more unit of a product, and marginal revenue (MR) is the change in total revenue resulting from the sale of an additional unit. When a firm increases production, marginal costs will rise as variable costs increase. However, for each additional unit sold, marginal revenue will rise. The key is to find the level of production where marginal revenue is greater than marginal cost, as these are the units that will generate a profit. Once the optimal production level is established, a firm's optimal revenue and profit can be determined. The marginal analysis process can be used to make decisions about a variety of business issues, such as pricing, production, and inventory management. For example, if a firm is considering increasing prices, it can use marginal analysis to determine the optimal price that will maximize revenue and profit. It can also be used to determine the optimal level of production, where marginal cost is equal to marginal revenue. Ultimately, understanding the relationship between demand, cost, and profit is essential for businesses to be successful. In summary, understanding the relationship between demand, cost, and profit is essential for a successful business. Marginal analysis is a tool used to examine the changes in a firm's costs and revenues when production or sales volume changes by one unit. It takes into account fixed and variable costs, average fixed and variable costs, total cost, average total cost, marginal cost and marginal revenue. With this information, a firm can determine the optimal production level, pricing, and inventory management. Ultimately, marginal analysis can help businesses make informed decisions to maximize their revenue and profits. 4