Acca P3

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  • Topic: Marketing, Pricing, Competition
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  • Published : April 25, 2013
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RELEVANT TO ACCA QUALIFICATION PAPER P3

Studying Paper P3? Performance objectives 7, 8 and 9 are relevant to this exam

BUSINESS STRATEGY AND PRICING

The revised Paper P3 Study Guide now includes an additional learning objective, E3e: ‘Describe a process for establishing a pricing strategy that recognises both economic and non-economic factors’. This is an extension to the learning objective E3d which refers to the effect of e-marketing on the traditional marketing mix of product, promotion, price, place, people, processes and physical evidence. It is, of course, appropriate for accountants to specialise in the determination of price as this can relate closely to other accounting measures such as costs, revenues and profits. Additionally, altering the price of a product will usually allow much faster changes to organisational performance than developing products or designing and running promotional campaigns. This article looks first at the influences on prices and then at specific approaches. The influences on prices The influences on prices can be summarised by the following diagram: • Mission and marketing objectives • Pricing objectives

Costs
• • • Marginal Total absorption Opportunity

Competition
• • • • Type of market Price competition Non-price competition Other marketing mix variables

Customers
• • • • Consumers Intermediaries Perceived value of the goods Nature of the goods

Controls
• • • Statute Regulation Contract

Although there might appear to be a natural or normal order in which to deal with these influences, if must be emphasised that, as in all of strategic planning, the process is likely to be iterative. One might have a marketing objective in mind but then find that it will be impossible to achieve it because of cost or competition issues, so the objective has to be revisited. Pricing is certainly a dynamic process as nothing will remain constant: the economy, taste, innovation and above all, perhaps, competitor actions and reactions will change continually, often forcing prices to be re-appraised. Mission and marketing objectives Pricing is ultimately part of an organisation’s strategy and we should, therefore, go back to where strategic planning should begin: the organisation’s mission. There we will find the organisation’s purpose, its self-perception, its feeling about its position in the market, and material

© 2011 ACCA

2 BUSINESS STRATEGY AND PRICING FEBRUARY 2011 relating to the organisation’s culture and ethics. Pricing cannot be separated from mission. For example: • An organisation might have a charitable or not-for-profit purpose, in which case prices for its products and services might be zero or heavily subsidised. • An organisation might perceive itself to be ‘up-market’, in which case it might have to charge high prices to project quality and exclusivity. • Pharmaceutical companies face ethical issues when pricing their life-saving products for both rich markets where they hope to make profits, and for poor markets where there are ethical and social responsibility dimensions. Pricing objectives Whereas missions and marketing objectives tend to be long term, in the shorter term there can be a variety of pricing objectives. For example, profit-seeking organisations have to at least break even eventually and, if possible, prices have to be set to allow this. There is, for example, no point in having a mission which is to be upmarket, and then trying to enforce that impression by having prices so high that sales volumes are negligible. Sometimes, the need to survive and bolster cash flows quickly will dictate massive price cuts. Sometimes an organisation might reduce its prices, sustaining losses for a while, in the hope of forcing competitors to withdraw from the market. Costs In profit-seeking organisations, revenues have to exceed costs; in not-for profit organisations revenue has to match income. By this stage of your studies you should be well aware that...
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