BA (Hons) International Management
Activity 6- Pricing
1. Give an example of each major type of pricing objective: profit-oriented pricing, sales-oriented pricing and status quo pricing.
Lamb/Hair/McDaniel (2012) mention that establishing realistic and measurable pricing objectives is a serious part of any firm’s marketing policy. Pricing objectives are usually categorized into three categories: profit oriented, sales oriented and status quo. In consistent with Lamb/Hair/McDaniel (2012) profit oriented pricing is based on profit maximization, reasonable level of profit or a target return on investment (ROI). The objective of profit maximization is to produce as much as income as achievable in relative to cost. Frequently, a more applied approach than profit maximization is setting prices to create profits that will fulfill management and stakeholders. The most common profit oriented approach is pricing for an exact return on investment relative to a firm’s properties. According to Lamb/Hair/McDaniel (2012) the second type of pricing objective is sales oriented and it emphases on either preserving a fraction share of the market or increasing dollar or unit sales; the third type of pricing objective purposes to maintain the status quo by identical participants’ price.
Lamb, Hair, McDaniel (2012) “MKTG 5th edition”, ch.19, p.302- 305
2. Why is it important for managers to understand the concept of break-even points? Are there any drawbacks?
According to Adam Gordon (2011) “we don't make a profit until we cover all the variable costs incurred”; the point at which this is reached is known as the "breakeven point". Gordon (2011) mentions that more we sell after this point is reached more profit is made as well as the inferior the gross profit margin the smoother the transactions line on existing graph and more you have to sell before you break even. The static costs increase and there are no other changes then it will have to sell more before we make a profit. The overall profits can increase by going out increasing sales or by going up in selling lower volumes but with greater margins. The gross profit is the key to success. It is important to decide what is the good method in your market. The price sensitive market, demanding to have low limitations, but giving sales capacities or is it where expected to sell fewer but with a greater boundary.
Gordon, A., (2011) what is break even and why is it so important? Available at: http://www.profitsleakdetective.com/articles/65-what-is-break-even-and-why-is-it-so-important
3. Describe the role of pricing during periods of inflation and recession.
According to MKTG (2012) marketing director employ cost-oriented and demand oriented strategies during of inflation; cost-oriented strategies include dipping goods with a low profit margin, using delayed-quotation pricing and escalator pricing and adding fees. While MKTG (2012) points out that demand-oriented pricing approaches contain price protecting and growing demand through humanizing selected clients, generating unique contributions, changing the package size and intensifying consumer requirement. To excite demand during a recession, dealers use value based pricing, bundling and unbundling. Recessions are also a good time to prune lossmaking items from product lines. Directors struggle to cut prices during recessions in order to preserve incomes as revenues decay. Realizing new technology, cutting employees and forcing contractors for reduced prices are common techniques used to cut costs.
Lamb, Hair, McDaniel (2012) “MKTG 5th edition”, ch.20, p.333- 334 4. Explain the role of supply and demand in determining price.
According to MKTG (2012) “supply is the quantity of a product that will be offered to the market by a supplier at various prices for a specified period”. The falling in demand curve the supply curve slopes upward and...