Standard costing

Arthur Brébant

STRATEGIC MANAGEMENT ACCOUNTING

APC309

UNIVERSITY of SUNDERLAND

i. The models and concepts affecting the pricing decision, critically reflecting upon their usefulness.

Pricing decision, usually made after the sum of the costs (for example: fix cost, advertising, transport) of the service or product you have to pay for the commercialisation and after the comparisonwith the competition. It’s the first and most simple definition. In fact it depends of a lot of factors:

– Internal factor depending on ours choices on ours decisions, for example in our company to have our production all around the world to reduce the cost of the transport to the shop.
– External factor out of the control of the company as a high level of the competition on the market.From an economic point of view, the quantity of the Demand is a function of the price and logically the more the price is high, the less the Demand will be important.

But what is interesting it is to make the biggest profit possible maximizing the relation quantity / price.

As one of the four Ps of the mix-marketing, pricing is an important factor of success for the service or product yoursell, if you have a good product in the right place with a good promotion but with a too expensive price for your target it won’t work, it could also happen with a price too low for your target, people could think it’s not the good quality as it’s notify in the promotion.

So to fix the correct price you also have to determine the objective to reach, for example to increase the sales quantity, themarket shares, to discourage new entrants or to get a competitive advantage and for each objective a strategy.

Our objective is to make sufficient revenue to meet our budgeted target profits so we have to define the right strategy to reach this objective.

– The strategy proposed first was the economy pricing to sell at a lower price to increase the volume and sell more and make more money,all costs are strictly kept at the minimum, but we could also loose the trust of the consumer in the quality of our product. And we have to keep in mind that with a low price we could sell more products but make less profit respected to the product with higher price even if the quantity is less important. We have to maximize this relation quantity between prices.

– On the contrary it’s possibleto increase the price of our product giving the guarantee to the customer it’s a high quality product, but a premium pricing policy is better for a luxury and famous brand more than the quality of the product it’s above all the “Name”.

– Price Skimming, a low quality product with a high price due to a substantial competitive advantage, usually it’s at the beginning of new market and there isa poor or no competition so a high price, new competitors are attracted by the high price and in the long term the price will decrease.

– If you have the objective to target more consumers it’s better to fix a lower price and when you reach the number of the customers desired you could increase the price. The penetration pricing policy need a high quality product and a big work onfidelisation to develop the loyalty of the customer to manage his reaction when the price will be increased.

These four strategies are the main pricing policies but I would like to investigate others three strategies.

– Optional product pricing, you sell something with the product it’s a way to promote the product. In our case we could propose with one of our standard electrical good insurance in caseof a problem with the product.
– Value pricing that also could be a possibility for us in recession period as we know after the economic crisis proposing value electrical product strengthened with a promotion of the high quality of the products to maintain the image of the company, because of the association low price/low quality. A such strategy could also influence the customer vision of…