Absorption Costing Transparent Pricing
Absorption pricing is a method for setting prices, under
which the price of a product includes all of the variable
costs attributable to it, as well as a proportion of all fixed
costs. This is a variation on the full cost, plus pricing
concept, in that the full cost is charged to a product, but
profit is not necessarily factored into the price (though it
is likely to be). The term includes the word "absorbed,"
because all costs are absorbed into the determination of
the final price.
Accumulated Production
It refers to the gain a company experiences in producing a product over
a period of time. Workers learn shortcuts, materials flow more smoothly,
and procurement costs fall. The result is that average cost falls with
accumulated production experience. This decline in the average cost
with accumulated production experience is called the experience curve
or learning curve.
Activity Based Cost Accounting
Activity-based costing is a costing method that identifies
activities in an organization and assigns the cost of each
activity to all products and services according to the actual
consumption by each. Therefore, this model assigns more
indirect costs into direct costs compared to conventional
Steps in Activity-based Costing
1.Identify which activities are necessary to create a product.
2. Separate each activity into its own cost pool, which is a group of
individual costs associated with an activity.
3. Determine the total overhead of each cost pool. For example,
purchasing could be its own cost pool.
4. Assign activity cost drivers to each cost pool. Cost drivers are things
(e.g., units, hours, parts, etc.) that control the changes in costs. For
example, purchasing costs are driven by the number of parts purchased.
5. Divide the total overhead in each cost pool by the total cost drivers to
get your cost driver rate. Lastly, compute how many hours, parts, units,
etc. that the adivity used and multiply it by the cost driver rate.
Alliance Pricing Strategy
A strategic alliance is an arrangement between two
companies to undertake a mutually beneficial
project while each retains its independence. The
agreement is less broader and less connections than
a joint venture, in which two businesses provide
resources to develop a separate business entity. The
alliance strategy goal is to provide organization in
promoting the product while producing, advertising
and pricing strategy.
Analyzing Competitors Costs and
Prizes
One of the key aspects of gaining an edge in value-
based pricing and competitive analysis is understanding
your competitors' pricing tactics. By gathering insights
on how your competitors price their products or services
, you can make informed decisions that allow you to
position your offerings effectively and maximize your
profitability. In this section, we will explore some
effective strategies and techniques for leveraging
competitive intelligence to gain valuable insights into
your competitors' pricing strategies.
Auction-type Pricing
Anauction is a sales event wherein potential buyers
created competitive bids on assets or services either in an
open or closed format. Auctions are famous because
buyers and sellers believe they will attain a good deal
buying or selling assets.
English
Auctions: English Auctions consist of one seller
and multiple buyers.
Dutch Auctions: Under Dutch auctions, there may be one
seller and many buyers or many sellers and one buyer.
Sealed-BidAuctions: Government and industrial purchases
generally follow this method of pricing.
Break Even Sales
Break even sales is the dollar amount of revenue at which a
business earns a profit of zero. This sales amount exactly
covers the underlying fixed expenses of a business, plus all
of the variable expenses associated with the sales.
Broad Cost Leader
One of the five business level strategies. Where the strategy's
competitive advantage is the cost of goods sold and its
competitive scope is broad in target. Broad cost leaders must
provide an acceptable level of service, quality, and features at
a low price and sell to a broad market segment.
Broad Differentiation
The broad differentiation strategy is a common strategy used by
companies to achieve a high market share. It involves the
company developing a product line, which includes several
different but related products. This allows the company to offer
customers a wide range of products with different features and
benefits.
Broad Price Policy
A broad price policy sets the overall direction (and tone) for a
firm's pricing efforts and makes sure pricing decisions are
coordinated with its choices regarding a target market, an image,
and other marketing-mix factors. It incorporates short- and long-
term pricing goals, as well as the role of pricing.
Captive Pricing
The firm tries to price their product low to attract buyers and recover
from the bigger volume expected in the accessories or consumables.
However, unless the firm has absolute patent protection, consumers
may decide to forego purchase of consumables or look for substitutes if
the prices of the consumables are set too high. Competitions who are
always waiting for opportunities may also time their entry into the
market with a better offer and then drive down prices.
Captive Product Pricing
Captive product pricing is a pricing strategy devised to attract
a large volume of customers to a one-time purchase of a lower-
priced core (or main) product that requires accessory (or
captive) products for the main product to function.
Channel Pricing
Channel pricing is the utilization of your various routes to
market, or channels, in pricing decisions. It's been stated that
the golden rule of channel pricing is that it's not enough to
merely base pricing decisions on the market. In other words,
internal costs and competitive factors must also be
considered.
Clearance Markdowns for Fashion Merchandise
A markdown is cutting down a certain amount of percentage
from the merchandise original price. Clearance markdown is
also in this branch of pricing strategy that a firm could utilize.
Company Pricing Policies
A pricing policy is a company's approach to determining the
price at which it offers a good or service to the market.
Pricing policies help companies make sure they remain
profitable and give them the flexibility to price separate
products differently.
Competition-based Price Strategy
With competition-based pricing, competitors' prices are used as
a benchmark. And products are priced at, below, or above
competitor prices, rather than pricing based on customer
demand or production costs. It's also known as a competitor-
based pricing or a competitive pricing strategy.
Complementary Pricing Strategy
Complementary pricing strategy involves selling packages or
set of goods or services at lower prices than they would have
actually cost if sold separately. This is an effective strategy to
bundle unsold products or products with less demand with the
high selling products to clear up the shelf space and to
increase the profits. Bundling works wonders when two
complementary products are bundled together
Complementary Pricing Strategy makes itself unique is
because two products are complements when an increase in
the sales of one product leads to an increase in the demand
for the other product that what makes.
