Pricing Decisions (5) Flashcards
What are complementary products?
Goods that tend to be bought and used together
What may an organisation do when an organisation makes and sells complementary products?
It may wish to decide the selling prices for the products in a single pricing policy decision
Why may one product tend to be priced competitively?
Attracts demand for the complementary product
What is a volume discount?
A reduction in price given for larger than average purchases
The reduced costs of a large order?
Will hopefully compensate for the loss of revenue from offering the discount
What is the relevant cost approach?
To identify a price of which organisation will be no better off, but no worse off
If in relevant cost pricing, an item is sold at a price where organisation is no better off or no worse off?
Any price in excess of this minimum price will add to net profit
What is a special order?
A one-off revenue-earning opportunity
Special order situation? (spare capacity)
When a business has a regular source of income but also has some spare capacity, allowing it to take an extra work if demanded
Special order situation? (no regular source)
When a business has no regular source of income and relies exclusively on its ability to respond to demand
What usually happens when a business has a regular source of income but also has some spare capacity?
Firm would normally attempt to cover its longer-term running costs in its prices for its regular product
What does pricing for special orders not need?
To consider unavoidable fixed costs, which will be incurred anyway
