Chapter 13 - Price determination. Chapter 13 focuses on price determination, which is one of the most important decisions that successful organizations make. The purchasing professional must become an expert on the product or services for which they are responsible. | 1 Chapter 13: Price Determination Purchasing and Supply Chain Management 3rd edition, Copyright 2013 W. C. Benton Jr. All rights reserved Contents The Purchasing Decision and Purchasing Professional Price Discounts Pricing Methods Cost Learning Curves Cost Structure Analysis Terminology The Breakeven Analysis The Negotiation Process Price/Cost Analysis 2 Price of a Product or Service Usually based on a variation of cost and cover Production Promotion Distribution A reasonable profit Purchasing professional Responsible for determining price Must be aware of market conditions and prices associated with quality levels Must become an expert in the item being purchased Price is important but only one of many variables to consider 3 Price Setting Strategies (Economics) The formula for setting prices Differ between firm and industry ., chemical industry and computer industry General approaches: Cost-based approach Market approach The most popular approach for competitive environments . | 1 Chapter 13: Price Determination Purchasing and Supply Chain Management 3rd edition, Copyright 2013 W. C. Benton Jr. All rights reserved Contents The Purchasing Decision and Purchasing Professional Price Discounts Pricing Methods Cost Learning Curves Cost Structure Analysis Terminology The Breakeven Analysis The Negotiation Process Price/Cost Analysis 2 Price of a Product or Service Usually based on a variation of cost and cover Production Promotion Distribution A reasonable profit Purchasing professional Responsible for determining price Must be aware of market conditions and prices associated with quality levels Must become an expert in the item being purchased Price is important but only one of many variables to consider 3 Price Setting Strategies (Economics) The formula for setting prices Differ between firm and industry ., chemical industry and computer industry General approaches: Cost-based approach Market approach The most popular approach for competitive environments Target pricing The price set by the buying firm that fits its competitive cost structure 4 Price Setting Strategies (Psychological) Power The major psychological influence in a buyer–supplier relationship A powerful buyer: Could force a supplier to eliminate its overhead from the ultimate price Could drive the supplier out of business and reduce competition in the supply market 5 General Sources of Price Information Published price lists Quotations Other buyers in the market Trade journals Negotiations Competitive Bidding Distribution The specific suppliers themselves may be the best source Buyers should always ask to obtain a cost breakdown 6 Discounts Popular discount types: Cash Discounts When payments for goods and services are promptly remitted Example: Cash discount of 3/10, net 30 If the buyer pays within 10 days of the shipment date of the invoice, it may deduct a 3 percent from the invoice price Trade Discounts Buying firm splits the middlemen profit margin and buys directly .
