Cost plus pricing Adding standard markup to the cost of the product Unit cost

Cost plus pricing adding standard markup to the cost

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Cost plus pricing… Adding standard markup to the cost of the product Unit cost Markup = ________ Price 1 - desired return EG. if unit cost is $16 and desired return is 20% then selling price is $20 $16 = $20 (1 - .20)
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Break-even Analysis Contribution = price - variable cost Total Fixed Costs BEP = ________________ Contribution/unit
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Break-even analysis flexibility… do BEP based on desired market share is that market share attainable? Include profit objectives in fixed costs include marketing costs to see impact on BEP
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General Pricing Strategies Competition Based Pricing benchmark against competition strategically: maintains existing market shares Market Skimming Pricing maximize price to “skim” profits from segments willing to pay high price image and quality must support high price used by high tech firms to recover R&D costs quickly take advantage of “fad” demands take advantage of price insensitive innovators Market Penetration Pricing low initial pricing to achieve high market share quickly potential for economies of scale favourable conditions: market is price sensitive economies of scale must exist low price an effective entry barrier
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Pricing Services unique challenges in allocation of variable costs pricing strategy = demand smoothing encourage customers to come during slow hours Maximizing revenue during high-demand (without alienating consumers)
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Promotional Pricing pricing for short-term sales boost loss leader to drive traffic special event pricing (PR) cash rebates or low-interest financing problem: easily copied by competitors can undermine brand equity “I bought it because it was on sale.” obscures reference points What is the “regular” price?
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Strategic Price Management About value vs. price Add value versus reduce the price Pricing = process of capturing value Manage everything that has value to consumers About customer’s “willingness to pay” which can be influenced Anderson & Simester found a 20% decrease in demand for an apparel retailer when customers perceived a price increase as unfair Centralized pricing responsibility Set policies not reaction
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II. Customers use of Price
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