Please enable JavaScript.
Coggle requires JavaScript to display documents.
Growth Strategy (Pricing Strategies (Multiple product pricing…
Growth Strategy
Pricing Strategies
-
Cost-based pricing
adding fixed % mark-up to average cost ; more commonly used in SRAC as estimates are more reliable than LRAC
Firms will usually use AC. AVC will follow saucer shape curve and normal output is determined from the flat portion of the curve. then mark up based on the price at normal output. trial and error wrt
:pencil2:sales and profits target :pencil2:response of rival firms :pencil2:how firms wishes to spread overheads aX products
Price discrimination
- 1st degree: max price charge to that consumer is prepared to pay
- 2nd degree: firms offer consumers a range of diff pricing and let them choose accordingly i.e discounts for bulk purchases, coupons and vouchers
- 3rd degree: charges diff price to diff categories of consumers
Conditions:
- firm has degree of market power
- impossible to buy and resell in another market
- differing price elasticity of demand between consumers at any given price
:recycle:Distributional effect
consumer surplus gained by paying lower than expected price. Policy makers may wish to know the distribution of costs and benefits in order to make a judgement on the social desirability of the pricing policy
:recycle:Effect on output
- additional output -> FDPD -> social optimum
:recycle:misallocation effects-> TDPD-> product is reallocated to consumers less willing to pay
:recycle:Anti-competitive effects
- Predatory pricing
Other pricing Strategies
- Peak load pricing
- 2 part tariff - fixed fee; separate charge
Multiple product pricing
Interrelated demand
- loss leader
- full range pricing
Interrelated Production
- By-product - cost+ revenue calculated as a combined entity, but price is though individual D curve
Transfer pricing
- pricing system where intermediate goods are transferred bet diff divisions of the org
- used as a form of tax "evasion" for MNCs
Growth and Profitability
Maximum firm size beyond which profits will fall due to
:red_cross:managerial diseconomies of scale
:red_cross:downward-sloping D curves
rather than size, maybe is the rate of growth of firm that limits the profitability hence,
i) profitability affects growth
ii) growth affects profitability
( if profits leads to expansion, increased market power, greater economies of scale)
Constraints in growth
Difficult financial conditions
- internal funds
- new share issues
- borrowing
Lack of Shareholder Confidence
- take over constraints
- new investments may reduce current dividends
- lack of new investment -> taken over by competitor
Poor managerial conditions
- Process of managerial expansion
(new managers takes time to incorporate into management team
- Expertise of management team
Adverse demand Conditions
- dependent on market conditions
-
-
Product Life cycle
- Launch : current price elasticity of demand/ likelihood of new entrants
- Growth: attract new entrants/ oligopoly
- Maturity: intense competition/ innovation/price wars
- Decline: struggle to retain sales and firms driven out of market; sales level out and fall to 0 if product obsolete