Pricing Decisions (3) Flashcards
What is a volume-based discount?
A discount given for buying in bulk
What may an organisation wish to consider?
Offering a volume-based discount to customers for purchases above a certain quantity
What is the intention by offering the sale price discount?
Customers will buy more of the product
What is the price of the product calculated by?
Adding an appropriate profit mark-up to the product’s cost
Advantage of cost plus pricing strategies (readily)
Readily understood and determined
Advantage of cost plus pricing strategies (linear)
Assume a linear and stable price/quantity relationship
Disadvantage of cost plus pricing strategies (quantity)
It ignores the impact that price will have on quantity demanded, it will not maximise profit
Disadvantage of cost plus pricing strategies (basis)
If basis of absorbing overheads changes, price of product will change
What do absorption costing methods require?
Accurate overhead and activity levels
Disadvantage of cost plus pricing strategies (market)
Price may need to be adjsuted to reflect market conditions
What is penetration pricing?
A policy of low prices when a product is first launced to obtain strong demand for product as soon as it is launched on the market
What should low prices encourage?
Bigger demand
When is penentration pricing useful (entrants)
Firm wants to discourage new entrants into the market
When is penentration pricing useful (life cycle)
Firm wishes to shortern the initial period of product’s life cycle
When is penentration pricing useful (economies of scale)
There are significant economies of scale to be achieved
