Pricing Strategies Part B

Question 1

Price setters

Answer 1

= organisations that have some discretion in deciding their own selling prices

Question 2

Price takers

Answer 2

= prices are set by overall market and supply + demand forces and they have little influence over the selling prices of their products + services

Question 3

Limitations of cost plus pricing

Answer 3

• demand is ignored
• assumption to be made about future volume
• there is no guarantee that total sales revenue will be in excess of total costs
• can lead to wrong decisions when budgeted activity is used to utilise costs

Question 4

Reasons for cost plus pricing

Answer 4

• easy and fast determination of price
• encourages price stability
• target mark ups can be adjusted according to expected demand
• difficulty in applying sophisticated procedures where a firm market hundreds of products