With fewer unit sales and no reduction in overhead costs the remaining products

With fewer unit sales and no reduction in overhead

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units might be sold. With fewer unit sales and no reduction in overhead costs, the remaining products will be assigned greater per unit overhead costs. If selling prices are increased to cover these still higher unit costs, there could be a further decline in sales. So company prices itself out of business. - Variable cost pricing ; variable-cost pricing adds a markup on just the variable cost. Disadvantages : -Fixed costs not taken into account; so not covering them at all. So you need to set profit margin above variable costs that is high enough to cover fixed. Or business model adjustment (like Ryanair; cover fixed costs by additional revenues like catering). -- Add more from adjusted slides after lecture – Pricing decisions and target costing : Kind of a reverse process
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Price discrimination = e.g. flights (see slides); if you fly back and forth same day, they assume that you’re a business person on business trip; less price elastic. Price elasticity of demand = degree to which customers respond to price changes by buting more or less of a product. - Business travelers are less sensitive to price changes o Less flexible, fly on company’s budget… - … Compared to leisure travelers o More flexible, fly on their own budget. - Companies can increase their product by exploiting demand elasticity of consumers.
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