07 Pricing continued

07 Pricing continued - Pricing Continued Problems with...

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Pricing Continued Problems with breakeven analysis - Break even: do we have enough revenue to cover the costs (FC + VC)? - Assumes demand and VC do not change with volume; projects in linear fashion - Assumes costs can be broken down into FC and VC o What about costs in between? Tide vs. Cheer, different production plants, etc.; assign 60% of FC to Tide? 20% to Cheer? o From Johnson presentation: What are fixed costs? (drug pricing) Costs to bring a new drug to market 1995: $500k 2006: $1.5 billion from 20,000 compounds synthesized, 2 drugs are commercialized issue: yes, price must cover costs BUT which costs—allocate fixed costs? o Broccoli, lettuce, leaf, cauliflower price averages Price refers to how much the grocery store must pay the farmers Because the price is fluctuating so much, it is difficult to predict the FC Selecting a Price Level - Demand approaches: customer oriented - Cost approaches - Profit oriented approaches - Competition approaches Demand based approaches - prestige pricing o
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