Purchasing

• Price is the amount of money expected, required, or given in payment for something
• A business can use a variety of pricing strategies when selling a product or service
• Price can be set to maximize profitability for each unit sold or from the market overall
• Price can be used to defend an existing market from new entrants, increase market share within a market, or enter a new market
• Businesses may benefit from lowering or raising prices, depending on the needs and behaviors of customers and clients in the particular market
• Finding the right pricing strategy is an important element in running a successful business
• Pricing is important because it is used to create financial projections, establish a break-even point, and calculate profit and loss
• Factors affecting pricing include pricing objectives/strategies such as penetration pricing, competitive pricing, skimming, pricing for stability, and return on sales/investment pricing
• Price tactics include product line pricing, price bundling, complementary pricing, everyday low pricing, warehouse sales, direct price discrimination, differential pricing, value pricing, loss leader pricing, psychological pricing, penetration pricing, target pricing
• It is necessary for the marketing manager to decide the objective of pricing before actually setting the price
• Pricing objectives are the overall goals that describe the role of price in an organization's long-range plans
• Cost analysis, also known as cost-benefit analysis, involves calculating potential earnings from a situation or project and subtracting the total associated costs
• Importance of cost analysis:

  • Helps in decision-making
  • Keeps stakeholders involved
  • Solves problems
• Cost analysis helps professionals make decisions about future projects by weighing costs against profits
• Cost analysis ensures stakeholders are involved in decision-making processes
• If project costs exceed predicted earnings, adjustments can be made to increase profits or reduce expenses
• Stakeholders contribute to companies and have an interest in projects
• Sharing cost analysis information helps stakeholders make budgeting and financial strategy decisions
• Cost analysis can identify financial problems and provide solutions
• It helps companies maintain organization and understand finances and future projects
• Steps to calculate cost analysis:

  1. Determine the reason for needing a cost analysis

  2. Evaluate costs:

  • Direct costs
  • Indirect costs
  • Real costs
  • Tangible costs
  • Intangible costs

  3. Compare to previous projects

  4. Define all stakeholders

  5. List potential benefits

  6. Subtract costs from outcomes

  7. Interpret results
• Price is the amount of money expected, required, or given in payment for something
• A business can use a variety of pricing strategies when selling a product or service to maximize profitability for each unit sold or from the market overall
• Price can be set to defend an existing market from new entrants, to increase market share within a market, or to enter a new market
• Businesses may benefit from lowering or raising prices, depending on the needs and behaviors of customers and clients in the particular market
• Finding the right pricing strategy is an important element in running a successful business
• Pricing is important because it is used to create financial projections, establish a break-even point, and calculate profit and loss
• Factors affecting pricing include pricing objectives/strategies like penetration pricing, competitive pricing, skimming, pricing for stability, and return on sales/investment pricing
• Price tactics include product line pricing, price bundling, complementary pricing, everyday low pricing, direct price discrimination, differential pricing, and value pricing
• Target pricing requires the marketing manager to decide the objective of pricing before setting the price
• Pricing objectives are the overall goals that describe the role of price in an organization's long-range plans, helping the marketing manager as guidelines to develop marketing strategies
• Factors affecting pricing decisions:

  •cost

  • competition

  • legal and regulatory issues
• Penetration pricing set low priced to attract customers as many as possible
• Competitive pricing track price, cost, and relative quality of each competitor's offer.
• Price skimming set high price intro stage. High price perceived high quality for early adapters
• Price stability, price doesn't change much over time
• Return on Sales/Investment Pricing- price of a product based on the target return on the amount invested in a product
• Product line pricing- set price range for each product lines
• Product bundling- two or more product for a single price
• Complimentary pricing- giving off complementary vouchers, rebates, discounts, coupons, etc.