Pricing Decisions PDF

Pricing decisions Wednesday, 16 October 2024 1:36 PM 1. Pricing decisions Cost based - Focused on the cost of producing a product so there can be return on investment - Price must cover fixed and variable costs and allow for reasonable profit - Determined by adding a markup - Ignores m...

Pricing decisions Wednesday, 16 October 2024 1:36 PM 1. Pricing decisions Cost based - Focused on the cost of producing a product so there can be return on investment - Price must cover fixed and variable costs and allow for reasonable profit - Determined by adding a markup - Ignores market demand and competitor pricing Market based - Begins with a price that a customer is willing to pay - Price should reflect the value customers place on the product - Determined using some measure of customer demand - Difficult to measure value accurately Factors on price Peak load Charging different prices at different times to reduce capacity constraints pricing Price When a higher price is charged when product is first introduced skimming Penetration Refers to setting low prices when new products are introduced to increase m pricing Price gouging Charging a price viewed by customers as too high or unreasonable Transfer Prices charged for transactions that take place within an entity prices Price Setting different prices for different customers discrimination Predatory Deliberate act of setting prices low to drive out competitors and then raising pricing Collusive When 2 or more firms conspire to set prices above a competition price, whic pricing Dumping When a foreign based entity sells products in a country at prices below the m where the product is produced and the price could harm the local industry market share g prices ch harms customer welfare market value in the country pricing Dumping When a foreign based entity sells products in a country at prices below the m where the product is produced and the price could harm the local industry 2. Conceptual cost-volume-profit analysis (CVP) CVP analysis examines the effects of changes in costs and volume on an entity's profits - Used by managers to evaluate the interrelationships of selling price, sales volume, sale future profits Important for - Planning - Setting prices - Determining best product mix - Making the maximum use of production facilities 5 basic assumptions 1. Costs and revenues are linear within the relvant range 2. All costs are identifiable as variable or fixed 3. Costs are affectied only by changes in activity level 4. All units produced are sold 5. Sales mix is constant of there is more than one product market value in the country es mix and costs to plan