| UNIT 6: PRICING PRICING OR PRICE? READ THE PASSAGE AND DO THE EXCERCISES Pricing Is the manual or automatic process of applying prices to purchase and sales orders. Depends on: Production costs Distribution costs Demand level Competitors’ current or potential prices Pricing Also depends on company’s consideration of: Their overall objectives Their consequent profit or sales targets (: maximum revenue, maximum market share) Market positioning (Prestige pricing: quality products cannot be sold if their price is thought to be too low) Up or Down A large inventory, a fall in market share often lead to a cut in prices. Cost inflation, urgent need of cash often lead to a rise in prices. Demand that exceeds its possibility to supply also likely leads to a rise in prices. Elastic or Inelastic When sales respond directly to price variations, demand is said to be elastic. If sales remain stable after a change in price, demand is inelastic. . | UNIT 6: PRICING PRICING OR PRICE? READ THE PASSAGE AND DO THE EXCERCISES Pricing Is the manual or automatic process of applying prices to purchase and sales orders. Depends on: Production costs Distribution costs Demand level Competitors’ current or potential prices Pricing Also depends on company’s consideration of: Their overall objectives Their consequent profit or sales targets (: maximum revenue, maximum market share) Market positioning (Prestige pricing: quality products cannot be sold if their price is thought to be too low) Up or Down A large inventory, a fall in market share often lead to a cut in prices. Cost inflation, urgent need of cash often lead to a rise in prices. Demand that exceeds its possibility to supply also likely leads to a rise in prices. Elastic or Inelastic When sales respond directly to price variations, demand is said to be elastic. If sales remain stable after a change in price, demand is inelastic. Psychological Effects of Price Price cuts: Buyers believe that the product is faulty or of lower quality, or will soon be replaced, or that the firm is going bankruptcy. Price rises: Convince some customers that the product must be of high quality, or will soon become very hard to get hold of. Odd pricing Customers will register a price of $99 to the $90 price range rather than the $100. Total costs include: Operating and Servicing costs Respond to competitor’s price cut by: Improving product / service Improving Communications Reciprocal cut may: Lead to a price war, good for customers Be disastrous for producers, losing money. A product’s selling price generally represents: Its total cost (unit cost plus overheads), & Profit or “risk reward” Overheads: are various expenses of operating a plant cannot be charged to any one product, process, or department have to be added to prime cost or direct cost which covers material and labour. Cost accountants allocate .
