Download template - Bryon Gaskin

Readings and Homework
Due for class next Monday, 11/22/04
Read Ch. 10
Homework: 6-22, 6-23, 6-33,
6-34, 6-35,
6-39 (use 15% return for part b)
Ch 6 Pricing and Product
Planning
Price Taker
Match prices in industry
High volume
Standard mature product
Price Setter
Large market shares – price
leaders
Differentiated product
Types of Decisions

Product Mix
Constrained Capacity
Criterion:
CM per unit of constrained resource
Types of Decisions
Product Mix
Over-capacity
Include opportunity cost of drop product as
incremental cost
Criterion: minimize opportunity cost
Sacrifice product with the lowest CM per unit
of constrained resource
Types of Decisions
Special Order
Under capacity
Criterion: CM per unit
Over capacity
Evaluate capacity increasing options
(overtime?)
Consider sacrificing product
Types of Decisions
Pricing
If idle capacity
Minimal price = relevant costs
(will result in no change in income)
If over capacity
Minimal price = relevant costs including costs
to increase capacity or opportunity cost of
sacrificed product
Types of Decisions
Pricing
Cost-plus pricing (or full-cost pricing)
Price to cover VC, FC, and markup
Penetration Pricing: choose low markup
for new product to penetrate and capture
market share
Skimming Pricing: choose high price for
new product – cost of privilege to
possess newest & greatest