Prices

Frage	Antworten
3 influences on supply and demand	Customers Competitors Cost
How do customers influence Supply and demand	Influence price through their effect on the demand for a product or service based on factors such as quality and product features
How do competitors influence supply and demand	Influence price through their pricing schemes, product features, and production volume
How do costs influence supply and demand	Influences prices because they affect supply ( the lower the cost, the greater the quantity a firm is willing to supply)
Prices are decreased when demand is weak, and increased when demand is strong	Correct
Short run definition	Pricing decisions have a time horizon of less than one year and include decisions such as one time only special orders with no long run implications and adjusting product mix and output volume in a competitive market
Long run definition	Pricing decisions have a time horizon of one year or longer and include decisions such as pricing a product in a major market where there is some leeway in setting prices
Are fixed costs irrelevant for short run policy decisions	Yes because they cannot be changed
Our fixed costs relevant in long-run policy decisions	Yes because costs can be altered in the long run - for example avoidable fixed
Profit margin’s in the ??? pricing decisions are often set to earn a reasonable what??	Long run & return on investment
Do long run pricing look at all costs up and down the value chain	Yes
Market based definition	Price charged is based on what customers want and how competitors react
Cost basis definition	Price charged is based on what it cost to produce, coupled with the ability to recoup the cost and still achieve the required rate of return
What approach is used in competitive markets?	Market based
What approached is used in less competitive markets?	Either market based or cost based approach
What approached is used in non-competitive markets?	Cost based
Target price	1. Starts with a target price 2. Target price -estimated price for a product or service that potential customers will pay 3. Estimated based on current customers perceived value for a product or service and how competitors will price competing products or services
What are the five key steps to identify target price and target costs ?	1.Identify a product or service a customer wants 2. Choose a target price - starting point 3. Derive a target cost per unit 4. Perform cost analysis 5. Perform value engineering to achieve target cost
How do you derive a target cost per unit?	Target price per unit minus target operating income per unit
What is the definition of value engineering	Is a systematic evaluation of all aspects of the value chain with the objective of reducing cost while improving quality and satisfying customer needs
Examples of aggressive value engineering tohat IKEA has done	Supplier bidding and flat packages
Why do most firms use full cost for their cost based pricing decisions	It allows for a full recovery of all cost of the product it allows for a price stability it is a simple approach
What costs are used when calculating the markup percentage	Full costs not just variable cost
Are customer cost part of the value engineering Evaluation	Yes

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