Variable Costs- primarily labour and material, costs taht vary with production volume. In service industry variable costs are much more complex. Fixed Costs- costs taht remain essentailly at the same price level, regardless of the volume. (rent,utilites, insurance etc) Total Cost- sum of VC and FC Break Even Analysis- technique used to examine rlationship among cost, price, revenue and profit among different levels of production. Break Even point- # of units sold = total cost. (FC/Contribution per unit) Contribution per unit- equals the price less the variable cost per unit
4. Competition : Price War- two or more firms compete primarily by lowering prices. Predatory Pricing- firms practice of setting a very low price for one of its products with intent to drive competition out of business. Illegal under Sherman Antitrust Act and FTCA. Difficult to prove 5.Channel Members in clude manufactorers, wholesalers, and retailers. Gray market- employs irregular but not necessariy illegal methods; generally, it legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer. Many manufacturers of consumer electronics therefore require retailers to sign an agreement that demands certain activities. To discourage this from happeneing people put disclaimers on their website. everyday low pricing strategy, companies stress the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep-discount sale prices their competitors may offer. Adds value. consumers can spend less of their valuable time comparing prices, including sale prices, at different stores. Walmart. high/low pricing strategy, which relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases. attracts two distinct market segments: those who are not price sensitive and are willing to pay the high price and more price-sensitive customers who wait for the low sale price. reference price , which is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process. market penetration strategy set the initial price low for the introduction of the new product or service. Their objective is to buildsales, market share, and profits quickly. incentive to purchase product immediately. Firms using a market penetration strategy expect the unit cost to drop significantly as the accumulated volume sold increases, an effect known as the experience curve effect . Price Skimming- strategy of selling a nwe product at a high price that innovators/early adaptors are willing to pay in order to obtain it. Generally lowers price after time. Price ads should never decieve customers . False ads are illegal. Deceptive Reference Price- saying original price is inflated to look as if saving more. Loss leader pricing takes this tactic one step further by lowering the price below the store's cost- attempt to build store traffic. (buy one get one half off) bait-and-switch tactic is a deceptive practice because the store lures customers in with
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