Accounting 2 - Pricing Methods (5.2) Flashcards
What are the 6 strategies used to price items?
Recommended Retail Price (RRP), Competitor’s price, Market Reaction, Quotes, Percentage Mark-Up, Cost-Volume-Profit analysis.
What is Recommended Retail Price?
The easiest way for firms to set price, the RRP is the selling price recommended by the manufacturer or wholesaler on goods (like books, magazines and cards).
Are RRP mandatory?
No they are not, the retailer can decide on whether or not to apply them.
What does using the RRP do to other businesses?
It can force other businesses to follow suite, to maintain that the prices are competitive.
What is Competitor’s Price?
Prices charged by businesses competing in the same market, this can depend on the level of competition wherever the business is.
What happens if prices are set to high?
The sales will be lost to cheaper competitors and profits will suffer.
What do some businesses do (particularly larger businesses)?
They will offer a cheaper advertised price by a %, small businesses can not match this, forcing them to compete in other ways, like the service, expertise or product range.
What is Market Reaction?
The response of customers in a particular marketplace to price levels for a particular good or service.
What happens if the demand is high?
The owner can set prices higher as there is a clear demand. This can be seen in new fashionable items, or toys before Christmas.
What happens if there is no demand for a product?
The business will have no choice but to lower the price. This can be seen after Christmas when toy prices are lowered.
What do these three pricing methods have in common?
They are based on observations rather than calculations.
