chapter 5 notes - Chapter 5 Notes I Revenue process...

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Chapter 5 Notes I. Revenue process: Determining the selling price: Part of marketing, and is an operating decision that has long-term consequences. Customers: willingness to purchase goods depends on what a company charges for those goods. When selling price increases, the demand for that product decreases. If selling price decreases, the demand for that product increases. These rules do not apply if customers are not willing to substitute another product and are loyal. Also in the case of necessities versus luxuries. People are willing to forego luxuries, therefore demand of luxuries changes more than the demand for staple products which will stay the same despite changes in price. Quantity demanded is also largely influenced by the product quality and service. Competitors: selling price is also influenced by the quantity of the product supplied by competitors and the selling prices charged by those competitors. It is important to monit- or and learn from the competition. Companies with nearly identical products are called “price takers” as they “take” the selling price from the market based on total supply and demand. Individual companies have little or no influence in these types of markets. Pure Competition: an environment in which a large number of sellers pro- duce and distribute virtually identical products and services. Monopolistic competition: an environment in which a large number of sellers produce similar, but not identical, products. The market has a large impact on, but no control over, prices. Selling prices in this market are influenced by advertising quality and service as well as price. A firm must constantly monitor its competitors to note changes in their operat- ing strategies that may affect sales. Legal and social forces: constrain the prices that can be charged for products and thus, the company must monitor and learn from these external forces. The greatest im- pact is on large companies and on companies in certain industries. Legal constraints are imposed on monopolies , which have exclusive control over a product, service, or market. In certain circumstances, monopolies are allowed to operate because compet- ition is not in the best interest of customers. The danger posed by monopolies is that the company can set any selling price since it is the sole provider of a certain product. Constraints are also imposed on oligopolies , which is when a few firms control the types of products and services and their distribution. Government monitors these to prevent the forming of cartels, which are mono- polistic combinations of businesses. Price fixing occurs when a group of companies agrees to limit supply and charge identical prices for their goods and services.
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