Pricing Decisions
and
Cost Management
Learning Objective 1
Discuss the three major
influences on pricing
2.
3.
Learning Objective 2
Distinguish between short-run
and long-run pricing decisions.
implications
Adjusting product mix and output volume in a competitive
market
2.
$38
13
14
15
$80
$38.00
1.10
$39.10
approach
Less-Competitive Markets can use either the marketbased or cost-based approach
Non-Competitive Markets use cost-based
approaches
Learning Objective 3
Price products using the
target-costing approach.
Market-Based Approach
Starts with a target price
Target Price estimated price for a product or service
Understanding the
Market Environment
1.
2.
3.
5.
Learning Objective 4
Apply the concepts of cost
incurrence and locked-in costs.
Value Engineering
Value Engineering is a systematic evaluation of all
Cost Incurrence
This describes when a resource is sacrificed
or forgone to meet a specific objective.
Research and development
Design
Manufacturing
Marketing
Distribution
Customer support
Locked-in Costs
These are those costs that have not yet been
incurred but which, based on decisions that
have already been made, will be incurred
in the future (designed-in costs).
It is difficult to alter or reduce
costs that are already locked in.
2009 Pearson Prentice Hall. All rights reserved.
Locked-in Costs
costs are frequently locked in during the
design phase. Once the design of the
product is finalized, the cost of the product is
determined to a large degree.
cost reductions can be most readily attained
through value-chain analysis and the use of
cross-functional teams. By forming a team of
representatives from all segments of the
value chain, the product can be designed to
reduce costs while retaining features that
customers value.
2009 Pearson Prentice Hall. All rights reserved.
Cost Incurrence
and Locked-In Costs Graph
Learning Objective 5
decisions, because:
Allows for full recovery of all costs of the product
Allows for price stability
It is a simple approach
Learning Objective 6
Use life-cycle budgeting
and costing when making
pricing decisions
Life-Cycle Product
Budgeting and Costing
Product Life-Cycle spans the time from initial R&D on
costly
Many costs are locked in at the R&D and design stages,
even if R&D and design costs are themselves small
Learning Objective 7
Describe two pricing
practices in which noncost
factors are important when
setting prices
2009 Pearson Prentice Hall. All rights reserved.
Learning Objective 8
Explain the effects of
antitrust laws on pricing