cost 3 def

cost 3 def - Customer influence price through their effect...

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Customer Competitors influence price through their pricing schemes, product features, & production volume Costs influence prices because they affect supply (lower cost, greater quantity a firm is willing to supply) Short-Run pricing decisions have time horizon of less than a year, one-time-only special order no long-run implications, adjusting product mix & output volume in a competitive market, fix cost irrelevant cause cannot change in short-run, price decrease when demand low, vice versa Long-Run pricing decisions have a time horizon of one year or longer, pricing product in major market where there is some leeway in setting price Profit margins are often set to earn reasonable return on investment Market-Based Cost-Based price charge is based on what it cost to produce, coupled with the ability to recoup the costs & still achieve a required rate of return Competitive Markets use market-based approach Less-Competitive Markets use either market or cost based approach Non-Competitive Markets use cost-based approaches Target Price estimated price for a product/service that potential customers will pay, by estimating customers perceived value for product/service & how competitors will price competing product/service based on technologies, to see how distinctive and price charge based on distinctive a. Competition from lower cost producers has meant that prices cannot be increased b. Products are on the market for shorter periods of time, leaving less time and opportunity to recover from pricing mistakes c. Customers have become more knowledgeable and demand quality products at reasonable prices Value Engineering systematic evaluation of all aspects of value-chain, with the objective of reducing costs while improving quality & satisfying Value-Added Costs cost that, if eliminated, would reduce actual/perceived value of utility customers obtain from using the product/service Non-Value-Added Costs cost that, if eliminated, would not reduce actual/perceived value or utility customers obtain from using product/ service The cost that the customer is unwilling to pay for, defective parts, machine breakdowns, rework costs Cost Incurrence describes when a resource is consumed (or benefit foregone) to meet a specific objective - the two are keys to manage costs Locked (Designed)-In Costs costs that have not yet been incurred but, based on decisions that have been made, will be incurred in the future Mark up Cost Based formula for cost based adds a markup to the cost base to determine selling price, markup flex based on customers/competitors Target Rate of Return on Investment the target annual operating return that an organization aims to achieve, divided by invested capital
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This note was uploaded on 10/27/2011 for the course ECON 101 taught by Professor Womer during the Spring '08 term at NYU.

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cost 3 def - Customer influence price through their effect...

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