Pricing and Cost Test Notes

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  • Topic: Pricing, Price, Transfer pricing
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Chapter 11
What are the basic factors that affect price in any market? What considerations enter into the pricing decision? Ans 1 Price: The amount charged to customers in exchange for goods and services.Price communicates value to customers and profit to business owners. Market Price: The price that prevails in the market for a particular good at a specific time. For example, the price of gasoline posted at the gas stations around your town reflects the market price. Supply, demand, and time are key elements of market price.

Factors that affect price
Costs
* Fixed Cost- Costs that remain constant over a period of time regardless of sales volume. Insurance, Rent/Mortgage, Salaries &Depreciation
* Variable cost- Costs that vary based on sales volume or changes in business needs. Commissions, Advertising, Office Supplies & Utilities
* Competition
* Supply and Demand
* Fashion
* New technology
* Price

Internal and external company factors affect a company's pricing decisions. Internal factors include the company's marketing objectives, marketing mix strategy, costs, and organizational considerations. External factors include the nature of the market, demand, competition, and other environmental elements.

Define the various types of pricing strategies and objectives available to global marketers. Ans 2 Pricing strategies for products or services encompass three main ways to improve profits. These are that the business owner can cut costs or sell more, or find more profit with a better pricing strategy. When costs are already at their lowest and sales are hard to find, adopting a better pricing strategy is a key option to stay viable. There are various types of strategies:-

a) Cost plus pricing
b) Skimming
c) Penetration
d) Flexible

Identify some of the environmental constraints on global pricing decisions? Ans 3 Environmental Influences on Pricing Decisions
1. Currency fluctuations
2. Inflationary environment
3. Government controls, subsidies, regulations

Why do price differences in world markets often lead to gray marketing? Ans 4 A grey market or gray market, also known as parallel market, is the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer. The term gray economy, however, refers to workers being paid under the table, without paying income taxes or contributing to such public services as Social Security and Medicare It is sometimes referred to as the underground economy or "hidden economy." Importing certain legally restricted items such as prescription drugs or firearms would be categorized as black market, as would smuggling the goods into the target country to avoid import duties. A related concept is bootlegging, the smuggling or transport of highly regulated goods, especially alcoholic beverages. Price differentials mean opportunity to engage in arbitrage. “Buy low, sell high” is the operative phase, and many entrepreneurs are quick to capitalize on the chance to make some quick money. On the consumption side, many buyers jump at the chance to save money. They are willing to ignore issues such as buying from “authorized dealers.”

What is dumping? Why was dumping such an important issue during the Uruguay Round of GATT negotiations? Ans 5 It occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production. The anti-dumping agreement is a major agreement in the rules segment of the Uruguay Round package, although some versions of the anti-dumping code precede the Uruguay Round. Dumping is defined as exporting a product at lower than its 'normal value', interpreted as exporting below the sales price in the domestic market, below the sales price in a third market, or below cost of production plus mark-ups. An act of dumping can lead to...
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