Pricing Striates 2
1. Contribution is calculated based on price and costs. Often, we treat these variables as fixed. What are the implications of treating uncertain variables as fixed?
Some of the implications of uncertain variables could be payroll. You would have to have some baseline of how much you would be paying out every week. Someone may be out sick and you don’t replace the hours or you replace the hours with another employee that has a wage
Running an advertisement in the newspaper that you have changed to size that you want to put in the paper that would change the price either way it could be more or it could be less.
If you have delivery service than there would the price of gas changes from week to week. You would have to budget a little high if you are to come out even.
2. What are examples of conflicting motivations that might lead well- meaning managers to undercut a stated pricing strategy?
Some of the conflicts could be personal when someone comes into the store that the manager knows and gives them a good price break and that could turn into more than once and keep on going.
There also could be a computation between store manages that work for the same company. One may cut the price so the customers come to his store and adds volume to his store but in the token hurting the store the profit margin.
If a store manager has an ego problem of always wanting to be the best and showing everybody up to be the best. He may do whatever it takes to make himself feel better although he may not even know it or believe it.
Pricing Striates 3 ...
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...mental cost of doing business is a variable and can’t be determined until the company put it out into the market to see if the item is going to sell and any revenue.
It all comes down to how much overhead the business has if said company has two thousand dollars overhead the business must set pricing to meet the overhead to cover the cost of daily business. If the business keep on the same pricing strategies and wasn’t getting enough revenue then the business would have to close or do drastic change in liquidating some assets to free up some money to stay in business.
Works Cited
chapter 10. (n.d.). In The Strategy And Tactics of Pricing (p. 183). (Reprinted from The Strategy
And Tactics of Pricing, Fifth ed., p. 183, by T. T. Nagle & J. Zale, 1987, New Jersey: Prentice
Hall)
In The Strategy And Tactics of Pricing
[6] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 8, Cost-volume-profit analysis, p. 165-173
Their price must be one that is attainable and reasonable for the offerings. The Kotler & Keller text suggests that facilities analyze competitors and their offerings, estimate their own costs, and determine demand, in order to set the appropriate price.
Maxx benefits from chaos by picking up the pieces, merchandise at a discount, when other retail stores close, or have overruns, or unexpected changes in demand and in return pass these savings on to their customers who shop for value (Levine-Weinberg, 2016) This is the demand-side benefits of scale when the consumer rather pay less for name brand merchandise than to pay more for the same designer in the department store. The stores that where having difficulty in the retail market left themselves vulnerable by not defending their position and T.J. Maxx proactively attacks this opportunity with its purchasing power and passes the savings to its customers. This proactive process of attacking and defending is what Wee (2016) calls the holistic and balanced perspective of handling competition. Moreover, this business warfare strategy of attacking struggling competitors is called offensive marketing warfare strategy (Grewal, 2014).
Due to the various options of distribution channels their prices vary. Consumers take that into consideration when purchasing their products.
Atlantic Computer is a large manufacturer of servers and other high-tech products. They are known for providing premium high end servers. Atlantic Computer’s is in the process of introducing Tronn, a new basic server, which includes Performance Enhancing Server Accelerator (PESA) software. This software will allow Tronn to perform up to four times faster than its standard speed. Therefore these two new products were specifically designed to sell as a bundle or “Atlantic Bundle.” Jason Jowers, fresh off of his MBA degree is responsible for developing the pricing strategy for the “Atlantic Bundle. After much research Jowers narrowed down to four different routes on how the bundle can be priced: status quo, competitive, cost-plus, or value-in.
Setting prices too high would discourage purchasing and setting prices too low negatively affects revenue. While several pricing strategies exist, the use of a value-based pricing system, as implemented at Cabela’s, offers an optimal strategy that meet both customer expectations and company requirements.
...e. A price gouger needs to charge more in order to avail the product or service. In the case of Raleigh, the roads to the town were not accessible due to fallen trees and rocks. An entrepreneur would need to cut the trees and remove the rocks in order to take the product there. People who do that need compensation for all the trouble they take to bring products to the market. The youths who brought ice to Raleigh town had to cut down trees in order to access town. Instead of selling ice as the “right price” of less than 2 dollars, the youths charged more than 8 dollars. The price provided just there right compensation for all their efforts. Banning price gouging led to serious suffering of the people because the little food left went bad causing even more losses. For a few dollars for the price of ice, Raleigh residents could have saved millions worth of food.
Predatory pricing “is alleged to occur when a firm sets a price for its product that is below some measure of cost and forfeits revenues in the short run to put competitors out of business” (Sheffet p.163-164). The reason firms take the short term loss is because they hope to drive out competitors and raise prices to monopolistic levels. By doing this, they covered their short term loss to make even greater profits in the long term than they would have by not using predatory tactics (Sheffert). Predatory pricing became illegal under Section 2 of the Sherman Act. It has remained one of the more difficult allegations for prosecutors to prove, due to the complexity of determining the company’s actual intent and whether or not it the strategy is competitive pricing. According to Areeda and Turner, there are three ways to determine if a firm is implementing predatory pricing. First, a price above marginal cost is presumed lawful; second, a price below marginal cost is considered unlawful, except when there is strong demand; and third, average variable cost is considered a good proxy for marginal cost. This is a reason predatory pricing is still important today. The courts must decide whether or not companies are engaging in competitive prices for the good of the consumers or are using predatory tactics for the good of their own company. The purpose of this paper is to focus on the current legislation regarding predatory pricing, determining when there is predation in an industry and the cause and effect relationship it has on an industry.
Pricing is an important aspect of every business. Chief Financial Officer’s (CFO) use pricing to create financial projections, establish a break-even point, and calculate profit and loss margins (Power Point, 2005). It is the only element in the marketing mix that produces revenue. Price is also one of the most flexible elements of the marketing mix as it can be changed very quickly. This is usually done to beat competitor prices in an attempt to fix the product’s market value position very low (Anderson & Bailey, 1998). After all, high prices make it difficult to become the market share leader. The leading US retailer, Wal-Mart, is an expert at low product pricing as evident in 2004 with $250 billion dollars in sales to their 138 million weekly shoppers. However, they are also responsible for reducing prices so low that it drives specialty stores out of business. This is the effect Wal-mart has had on many toy stores and has almost closed the doors of the famous toy store Toys “R” Us Inc.
Customers with budget constraint may not view too many choices as favorable as they choose products base on lowest price.
Patrick Reinmoeller, a professor of strategic management at Cranfield School of Management, says that “companies that initiate price wars engage in self-destructive behavior, which leads to downward pricing spirals that alter industry structures.”
With supply solely, factors involved with regulation of the supply also control some aspects of demand. Things such as production costs and desired net profit can determine whether a business succeeds or not. Having a balance between quantity and price is the greatest control any business can have. Pricing is obviously one of the most beneficial, or destructive, parts of a business. Pricing is the first and most valuable thing an individual will look at, which will overrule most other judgments based off of quality and detail. Balancing the price, however, helps to create a pristine product, with just the right amount of detail that will fuel the market, while still generating a steady net income.
When demand is elastic as with Coca Cola products price changes affect total revenue. When the price increases revenue decreases and when the price decreases revenue increases. For Coca Cola if they notice a decrease in revenue they would offer products at a discount to increase revenue. They do this quite often with sales such buy 2 20 oz. bottles for $3 instead of the normal $1.89 each price
Commercial firms use Price Elasticity to manage pricing and production decisions, especially in industries where the growth in sales and revenues are the primary measure of a firm’s success. Knowledge of the Price Elasticity for a product or service enables managers to determine the pricing strategy required to get the sales results desired. For example, a firm with a product with a relatively high elasticity would know that a large sales increase can be created with a small price decrease. Conversely, a firm with an inelastic product knows that changes in pricing would have minimal effect on sales.
Store managers were responsible for the grocery line, front-end department and general store operations but had little knowledge about merchandising, meat and produce. Instead, their duties included cleanliness of store, employee appearance, and sufficient checkout service and price accuracy. Store managers wanted to be trained in management skills to allow them opportunity for promotion to higher positions of district and regional management. With the original structure, store managers operation activities actually prevented them from learning these skills, such as merchandising. Frustration ran high with the store managers as the district store supervisors only focused store visits to assure that company operating standards were being practices, instead of training store managers to run their stores more efficiently.