module 10 - 1 Define the term price and explain the...

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Q1     . Define the term ‘price’ and explain the importance of price to the     marketing organisation Price is what you gave up in an exchange to obtain other good. It may be monetary or non-monetary. It means one thing to consumer (cost) and something else to the seller (Revenue). Price plays a key role to the marketing organisation, because price is crucial to revenue which in turn is the key to profit for an organisation. Therefore managers usually strive to charge a price that will learn a fair profit. The goal to setting the right price is as follow: 1. Profit maximisation means setting prices that total revenue is as large as possible relative to total cost, but the price can not deviate the product’s perceived value. (MC=MR) 2. Appropriate price can increase sales and the market share for the marketing organisation. Sales and the market share are one of the most important concerns of the organisation. To maintain or increase market share is an indicator of the effectiveness of marketing mix within the organisation. Larger market share means higher profit. Appropriate price not only increase sales, but also guarantee the profit for the organisation. 3. The correct price is key point of the inventory turnover. The right price is accepted to the consumer, and it helps to balance the quantity of demand and supply. 4. More factors to include on……”why important?” To sum up, price is essential to the marketing organisation.
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Explain two methods of pricing based on cost and discuss one advantage and one limitation of each method. 1. Mark-up pricing Developed by Polish economist Michal Kalecki(1899-1970), mark-up pricing is an aspect of average cost pricing in which firms calculate the average cost of a product and add on a mark-up, or profit. Research conducted in 1939 showed that the mark-up often remains constant irrespective of supply and demand conditions. Mark-up pricing is considered an alternative to marginal cost pricing, but has been cited as a contributory factor in cost-push inflation. The biggest advantage of mark-up pricing is its simplicity. The primary disadvantage is that it ignores demand and may result in overpricing or underpricing the merchandise 2. Break-even pricing Break-even analysis determines what sales volume must be reached before the company breaks even (its total costs equal total revenue) and no profits are earned. The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product (TR=TC). A break-even point is typically calculated in order for businesses to determine if it would be profitable
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to sell a proposed product, as opposed to attempting to modify an existing product instead so it can be made lucrative. Break even analysis can also be used to analyse the potential profitability of an expenditure in a sales-based business. The advantage of break-even analysis is that it provides a quick estimate of how
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module 10 - 1 Define the term price and explain the...

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