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Description
Flashcards by Roxann Daniello, updated more than 1 year ago
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Created by Roxann Daniello
over 6 years ago
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| Question | Answer |
| 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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