Class Notes (839,091)
Canada (511,184)
ECON 208 (210)
Lecture 3

lecture 3.docx

2 Pages
116 Views

Department
Economics (Arts)
Course Code
ECON 208
Professor
Paul Dickinson

This preview shows 80% of the first page. Sign up to view the full 2 pages of the document.
Description
Eco Lecture (1) Even slight improvements in pricing can yield significant results. For ex­ample, for a company with 8% profit margins, a 1% improvement in price realization, assuming a steady unit sales volume, would boost the companys profits by 12.5%. By contrast, decreasing fixed costs by 1% would only lead to an increase in profits of 4%. • Continental Airlines had 44 million passengers in 2001, at an average ticket price of $193. Charging $2, or 1.04%, more per ticket would have transformed a loss into a profit. (2) 80% of managers know how much it costs to produce their product. 23%say they know their customers’ willingness to pay for the product. (3) 41% of firms have identified their inability to recruit employees with the right pricing tool sets as their major barrier to implementing pricing prac­tice overhauls. Three Cs and Pricing Typically an introductory marketing class teaches that any pricing strategy should reflect the ‘3 Cs’ of pricing: • Costs • Customer • Competition Advanced pricing analysis, however, views the 3 Cs as describing a set of con­straints that pricing strategies must overcome to succeed. The 3 Cs also describe three bad pricing strategies. PRICING BEYOND THE 3 CS • Cost-Based Pricing. Or, pricing on the basis of what it costs you to make the product. • Customer-Based Pricing. Or, allowing your customers to dictate your pricing policy. • Competition-Based Pricing. Or, choosing your pricing strategy exclusively on the basis of what your competitors do. Cost-Based Pricing. Cost-Based Pricing involves setting a price such that Price = (1+percentmarkup)(UnitVariableCost + AverageFixedCost) Practical implementation problems: (1) You have to know costs. • A baby sleep suit company made a loss despite engaging in cost-plus pricing, because they did not realize how much their packaging cost. • For example, Diamond Deliveries in Philadelphia. The bicycle divi­sion, which management thought of as Diamond’s core business, gen­erated just 10% of total revenues and barely covered its own direct labor and insurance costs. Diamond was
More Less
Unlock Document

Only 80% of the first page are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit