Study units 4 & 5 - Determining the Final Price At the...

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Unformatted text preview: Determining the Final Price At the end of these study units, you should be able to: identify and explain the different methods that can be used to determine the basis price level for a product or service. explain how list or qouted prices can be determined for products or services; explain the changes that can be made to list prices in order to determine the final price of a product or service; explain how the marketer can manage price changes. Determine the price that satisfies the consumer & business. Price should cover costs and realise profit . For the consumer, the advantages should justify the sacrifice. This is a difficult task! After determining pricing constraints, -objectives and cost, the basic price level can be determined. Four basic methods: 1) Cost-based 2) Profit-based 3) Demand-based 4) Competition-based Are used mostly Reasons (advantages) : * Easy to calculate * Risk is lower based on a known factor (cost) * Leads to more stable prices Biggest limitation = demand is ignored These methods work well in business where demand & competitions are stable Methods : i) Cost-plus (markup) ii) Cost plus percentage-of-cost iii) Cost plus fixed-fee iv) Experience-curve v) Break-even analysis Standard mark-up is added to the cost Is easy and convenient & therefore popular to use Ignore price sensitivity E.g. Cost of ice cream is R2.25 per litre Exhibit 3.4 Ice-cream to final consumers: cost-plus pricing Suppose a retailer uses a mark-up of 25% for its ice cream. The final selling price that would give the retailer a profit margin of 25%, can be determined as follow: R3,00 0,25- 1 R2,25 sales on return Desired- 1 unit per cost Average price selling Retail = = = ii) Cost plus %-of-cost A certain % of the cost is added to determine the price iii) Cost plus fixed-fee The supplier is responsible for all the costs to deliver the product, and a fixed fee (independent of the costs) are determined for profit (e.g. a plane) Over time, and as volume increases more is learned and experience increases which leads to increased efficiency that could decrease costs and lead to better prices....
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This note was uploaded on 06/02/2011 for the course ECON 322 taught by Professor Anon during the Spring '11 term at Rotterdam Business School.

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Study units 4 & 5 - Determining the Final Price At the...

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