定价策略期末复习ppt

Cont’d
First, a local competitor, Mathews Nursery, would probably be forced to meet any Ritter price cuts. Most of the other competitors would have difficult to match a 5 % price cut Segmented pricing- cutting price to the larger buyers only.
Capital cost allocation Oபைடு நூலகம்erhead allocation
Operating profit
Total Amount 86,250 $332,063 34,500 297,563 51,850 26,563 9,056 4,312 4,399 14,663 66,686 73,320 $46,741
Calculating Breakeven Sales Changes for Proposed Price Change
5% Off-Peak Season Price Cut %Breakeven sales change = - ∆P / (CM + ∆P ) =-(-5.0 %) / (58.5 %– 5.0%) = 9.3 %
Preparing for Next Class
Assignment : Analyze the price of a product in the same company or other one. Talk with the boss if necessary. Then answer the following questions: 1. How much would sales have to increase for this company to profit from a 10 % cut in the price? 2. What is the Breakeven Sales Change for a 10 % increase in the price? 3. Analyze which of the above alternatives (10% cut or increase in the price) would have more chance to be successful. The two selected groups: Presentation –Submit PPT Other Groups : Questions and comments – Submit assignment
Cont’d
10% Peak Season Price Increase %Breakeven sales change =-10.0 % / (58.5% + 10%) =-14.6% %Breakeven sales with incremental fixed costs = -14.6% + $Change in fixed costs / New $CM x Initial unit sales =-14.6% - $9,000 / ($2.635 x 45,000)=-22.2%
Chapter Three
Case Study: Ritter & Sons
Background
What is Ritter & Sons’ business? A wholesale producer of potted plants and cut flowers. Most popular product? Potted mums Who is Mr. Don Ritter CFO What did he want to do after attending a seminar on pricing? Raising or lowering the current price for more profits
Three crops of mums during the year Two during seasons with excess capacity One during the peak season without excess capacity Ritter charged the same price ($3.85) for mums throughout the year What is the problem with the original pricing?
Cost Projection for Proposed Crop of Mums
Items Unit Sale Revenue Cost of cuttings Gross margin Labor Shipping Package foil Package sleeve Package carton Pottery
Learning Points of the Case
Pricing Strategy can be used in real business You need to really understand how to use it (e.g. what costs are incremental, how to calculate breakeven sales change) Collecting data to support your report Analyzing the data carefully Team work preferential As a leader, you should have a good critical ability
Cont’d
Concerning the off-peak season price cut Current customers could not buy 9.3% more Could other customers switch to Ritter? Depending on competitors’ reactions also How did Rod and Sue get the information? Talking with customers and with Ritter employees who had worked for competitors Learned that they faced with two types of competition.
Judging Actual Sales Change
Sue James felt certain that sales during the peak season would not decline by 22.2% following a 10% price increase. Why? Mums as gifts in peak season Sensitive to quality not price Major competitors could not match Ritter’s quality due to long distant shipping Local competitor had not capacity to serve more customers
Price - Cost of cuttings - Incremental labor -Other direct costs = Dollar contribution margin -Incremental capital cost =Profit contribution
Collecting More Information on Production Quantities and Prices
Per Unit 1 $3.85 0.40 3.45 0.60 0.31 0.10 0.05 0.05 0.17 0.77 0.85 $0.54
Relevant Cost of Mums
With Excess At Full Capacity Capacity $3.85 $3.85 0.40 0.52 0.68 $2.25 0 $2.25 0.40 0.52 0.68 $2.25 1.8 $0.45
What did Don do first?
Identifying the relevant cost and contribution margin for mums. What costs are incremental cost? What costs are unincremental? What about labor cost? And capital cost?
Presenting to the Management Committee
First, Ron, then, Sue –Group Project Presenting a proposal graphically.
Management Committee’s Response
Initially skeptical of this new approach Asked probing questions Recognizing that the decision was not clear-cut Uncertain judgments about sales changes Accepted the proposed price changes. Postponed construction of one new greenhouse Agreed that Don should give a speech at an industry trade show on how this pricing approach could improve capital utilization and efficiency