Download Briefly explain the three major influences on pricing

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Transcript
Briefly explain the three major influences on pricing decisions.
The three major influences on pricing decisions are customers, competitors, and costs.
The customers influence pricing through their demand for product and services.
Competitors, on the other hand, affect price by providing or not providing alternative
product. The cost influences price through its effect on the supply. The lower the cost, the
more companies are willing to supply.
There are two approaches to determining pricing decisions for the firm long term.
What are the two approaches, how do they differ from one another, and who might
use each one?
The two approached in determining price decisions are market-based and cost-based. The
market-based approach focuses on looking at who the customers, competitors and the
cost incurred by the company. It is used by firms in competitive market. The cost-based
approach focuses on costs of making a product and then determines what price would
cover costs and yield a return on the investment. It is used by firms with unique products
or services.
What are the opportunity costs if Company X executives decided to acquire
Company Y? What are the opportunity costs if Company X executives decide not to
acquire Company Y? Why do you think considering opportunity costs is such an
important part of business decision making?
The opportunity cost for Company X if they acquire Company Y is the investment
revenue. On the other hand, the opportunity cost for Company X if they acquire
Company Y is Company Y’s revenue and market share. Considering opportunity costs is
important because it will help the decision maker to select which alternative will
contribute more in operating income of the company.