Page 160 - 5.2 i. Manac Costing ITC Summarised Notes
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DECISION MAKING
Factors To Consider When Setting Selling Prices
A. Organisations objectives (maximise short term profits / increased market share)
• Price skimming: High initial prices to take advantage of the novelty appeal of a
new product. Once the market is saturated the price can be reduced to attract
that part of the market that has not yet been exploited.
• Penetration pricing policy: Low prices are charged initially with the intention
of gaining rapid acceptance of the product.
B. The market within which the organisation operates
• Price takers: Selling prices determine by market supply and demand forces in
a perfectly competitive market. Organisations have little or no influence over
selling prices. The profitability of the product must be checked to ensure that
only profitable products/services are being sold.
• Price setters: In monopolistic market organisations have some discretion in
the setting of selling prices. In these instances cost plus pricing methods will
be used.
C. Price elasticity of demand (luxury goods = elastic, necessities = inelastic)
D. Competition / Availability of substitutes
E. Inflation
F. Legislation
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