MGTA02H3 Lecture : Chapter 7 Price.doc
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MGTA02H3 Full Course Notes
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Customers will not buy your product, unless they think the price is right. No magic formula, must cover costs of goods sold = higher then costs to make prod- uct. Mark-up- is what the business adds to cost of goods sold to arrive at its price. Skimming- set very high price (i. e. large markup) High price > small market > low sales. Sales volume needs to be large, small profit from each. Penetration- set low price (i. e. small markup) low price > large market > high sales. Which pricing strategy to use? to help answer break-even analysis . Helps you to understand relationship between: selling price, costs, and quantity of sales. Variable costs (vc)- increase with volume of activity. Fixed costs (fc)- do not increase with volume of activity. One rule: cover your costs of goods. If you know your costs--- you can choose a price. B-ea tells you: the quantity you must sell in order to make a profit.
