nRevChapter12 - l 2003 Prentice Hall Business Publishing,...

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Click to edit Master subtitle style 7/8/11 l 2003 Prentice Hall Business Publishing, Cost Information for Pricing and Product Planning Chapter 12
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7/8/11 l 2003 Prentice Hall Business Publishing, Pricing and Business How companies price a product or service ultimately depends on the demand and supply for it Three influences on demand & supply: 1. Customers 2. Competitors 3. Costs
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7/8/11 l 2003 Prentice Hall Business Publishing, Influences on Demand & Supply 1. Customers – influence price through their effect on the demand for a product or service, based on factors such as quality and product features 2. Competitors – influence price through their pricing schemes, product features, and production volume 3. Costs – influence prices because they affect supply (the lower the cost, the greater the quantity a firm is willing to supply)
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7/8/11 l 2003 Prentice Hall Business Publishing, Role of Product Costs In Pricing And Product Mix Understanding how to analyze product costs is important for making pricing decisions: l Managers make decisions about establishing or accepting a price for their products l Even when prices are set by the market and the firm has little or no influence on product prices, management still has to decide the best mix of products to manufacture and sell
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7/8/11 l 2003 Prentice Hall Business Publishing, Differences Affecting Pricing: Long Run vs. Short Run 1. Costs that are often irrelevant for short-run policy decisions, such as fixed costs that cannot be changed, are generally relevant in the long run because costs can be altered in the long run 2. Profit margins in long-run pricing decisions are often set to earn a reasonable return on investment – prices are decreased when demand is weak and increased when
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7/8/11 l 2003 Prentice Hall Business Publishing, Short-term and Long-term Pricing Considerations If production is constrained by inadequate capacity, managers need to consider whether overtime production or the use of subcontractors can help augment capacity in the short term In the long term, managers have considerably more flexibility to adjust the capacities of activity resources to match the demand for them in producing various products Decisions about whether to introduce
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7/8/11 l 2003 Prentice Hall Business Publishing, Short-term and Long-term Pricing Considerations The length of time a firm must commit its production capacity to fill that order is important because a long-term capacity commitment to a marginally profitable order may: l Prevent the firm from deploying its capacity for more profitable products or orders, should demand for them arise in the future l Force the firm to add expensive new capacity to handle future sales increases
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7/8/11 l 2003 Prentice Hall Business Publishing, Alternative Long-Run Pricing Approaches Market-Based: price charged is based on what customers want and how competitors react Cost-Based: price charged is based on what it cost to produce, coupled with the ability to recoup the costs and still
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7/8/11
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This note was uploaded on 07/08/2011 for the course ACG 4352 taught by Professor Nure. during the Spring '11 term at University of Florida.

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nRevChapter12 - l 2003 Prentice Hall Business Publishing,...

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