...Price-setting Behaviour – Insights from Australian Firms Anna Park, Vanessa Rayner and Patrick D’Arcy* Since 2004, the RBA has been conducting a survey of how firms set prices, how frequently they review and change prices, and what factors influence these decisions. the results show that firms employ a range of approaches to price setting, with around half reviewing their prices at a regular interval. early in the survey period, costs were the most important factor in price setting, though demand considerations became more important when economic conditions softened. Introduction The way firms set prices can be a key determinant of the dynamics of the inflation process. Given this, over recent years a number of central banks, including the Reserve Bank of Australia (RBA), have conducted surveys of how firms set prices, how frequently they review and change their prices, and what factors influence these decisions.1 This article discusses the results of an ongoing survey that has been conducted by the RBA since 2004. The main findings can be summarised as follows: • the surveyed firms employed a range of approaches to price setting, with slightly more setting prices as a mark-up on costs rather than in response to various demand factors; broadly the same number of surveyed firms reviewed prices at regular intervals (most commonly annually) as reviewed prices with each transaction or in response to external factors, although behaviour differs across sectors; and • costs...
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...Canada). The company offers a vast array of space conscious furniture units as well as kitchen ware and accessories for the home. The marketing strategy- “make less expensive items without making them cheap”, in other words, the company relies on its current success of making good quality products with low prices. Prices typically run 30 to 50 percent lower than that of its competitors and although cheaper, the idea is not to leave the customer with an inferior product. The process of keeping prices down from product conception and design to final distribution, these are the mainstays for this world leader. We will briefly describe the steps taken by IKEA in order to a produce one of its most famous products, the Trofe’ mug. The first step is establishing and setting the price of the product. During the process of product development also known as bringing the product to life. This involves numerous factors such as color, design, suppliers and most importantly, product price and in the case of the trofe’ mug, the price had to be extremely low, relying on sales volumes to generate sales and profits. As the development process of the product continues and once the price has been established, the next step is to choose a manufacturer to produce it. By choosing factors such as changing the design of the handle, shortening the overall length of the mug and streamlining its packaging to make shipping more cost efficient. In addition, by creating, establishing and maintaining...
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...Chocolate package design combined with price setting: A consumer purchase intention and overall impression investigation Cao Youjia, Wang Yicheng, Li Simei, Gao Junhong Abstract In our experiments, the research sheds light on consumers’ purchase intention and overall impression towards six types of combination of chocolate package and price: 1. aesthetic package with a relatively high price, 2. aesthetic package with an intermediate price, 3. aesthetic package with a relatively low price, 4.plain package with a relatively high price, 5.plain package with an intermediate price, 6.plain package with a relatively low price. After the six between-subject experiments, we find that package design and price setting do have influence on customers’ preference to purchase, but not as strong as our perception. On the other hand, the packaging has significance influence on the customers’ overall impression towards the product. The aesthetic package with the highest price leaves the customer the best impression. Implications for future application for businesses are discussed in the final part. Key words: Package design, price setting, analysis of variance, purchase intention. Introduction “Man shows that he is affected by appearance, by something that causes him pleasure over and above the immediate utility of the object” (Clay, 1908). Designing aesthetic products to satisfy the consumers’ need is of growing importance in marketing. As core attributes of product, such...
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...have no discretion in setting prices of your product ANSWER Perfect competition demands very strict assumptions that are unlikely to be found in many if any markets in the real world. Markets that most closely equate to perfectly competitive ones are those in which there are very large numbers of buyers and suppliers, reasonably free entry and exit from the market and well informed consumers. It is in such markets that the purchase decision is driven by price. A perfect competitive (price taker) market exists when the following conditions occur: • Low entry and exit barriers - there are no restraints on firms entering or exiting the market • Homogeneity of products - buyers can purchase the good from any seller and receive the same good • Perfect knowledge about product quality, price, and cost • No single buyer or seller is large enough to influence the market price Managers must take the existing market price; if they set a price above the market price, no one will buy their product because potential buyers simply will go to other suppliers. Setting a price below the market price does not make any sense because the firm can sell as much as it wants to at the market price; selling below the market price will just reduce profits. Because Managers must take the current market price a purely competitive market is also called a "price takers" market. The firm can sell as much as it can produce at the existing market price, so demand is not...
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...The Labour Market The labour force is the sum of those either working or looking for work. Those who are neither in the labour force nor looking for a job are known to be out of the labour force. The participation rate is defined as the ratio of the labour force to the population in working age. The unemployment rate is calculated by dividing the unemployed with the labour force (unemployed and employed). The average unemployment rate also hides large differences among different groups of workers within the same country. The most notable one is the higher incidence of unemployment among young workers. To get a sense of what a given unemployment rate implies for individual workers, consider the following analogy. Take an airport full of passengers. It may be crowded because many planes are coming and going, and many passengers are quickly moving in and out of the airport. Or it may be crowded because of bad weather delaying the flights and passengers are stuck, waiting for the weather to improve. The number of passengers in the airport will be high in both cases, but their plights are quite different. Passengers in the second scenario are likely to be much less happy. In the same way, a given unemployment rate may reflect two very different realities. It may reflect an active labour market, with many separations and many hires, and so with many workers entering and exiting unemployment; or it may reflect a sclerotic labour market, with few separations, few hires and a stagnant...
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...monopolistic competition are similar in that both market structures include A) price-taking behavior by firms. B) a homogeneous product. C) no barriers to entry. D) very few firms. Answer: C Diff: 1 Topic: Market Structures 2) Perfect competition and monopolistic competition are similar in that firms in both types of market structure will A) act as price takers. B) produce a level of output where price equals marginal cost. C) earn zero profit in the long run. D) act as price setters. Answer: C Diff: 1 Topic: Market Structures 3) Oligopoly differs from monopolistic competition in that an oligopoly includes A) product differentiation. B) barriers to entry. C) no barriers to entry. D) downward-sloping demand curves facing the firm. Answer: B Diff: 1 Topic: Market Structures 4) Regardless of market structure, all firms A) consider the actions of rivals. B) maximize profit by setting marginal revenue equal to marginal cost. C) produce a differentiated product. D) have the ability to set price. Answer: B Diff: 1 Topic: Market Structures Figure 13.1 [pic] 5) Figure 13.1 shows a payoff matrix for two firms, A and B, that must choose between a high-price strategy and a low-price strategy. For firm B, A) setting a high price is the dominant strategy. B) setting a low price is the dominant strategy. C) there is no dominant strategy. D) doing...
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....................................................................... 01 ABSTRACT ...................................................................................02 ASSIGNMENT ...................................................................................03 REFERENCE ...................................................................................08 INRODUCTION 1] Description managerial economics relies on microeconomics and industrial organization to analyze business practices and design business strategies 2] Description the difference between price-taking and price-setting firms. ABSTRACT Overview of industrial organisation and micro economics related to managerial economics and difference between price taking and price setting. ASSIGNMENT 1. Why managerial economics relies on microeconomics and industrial organization? Answer: The new managerial economics design comprised three part that is: part 1: basic concepts [supply and demand analysis ,market demand analysis ,production and cost analysis and factor markets] part2: industrial organisation...
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...the market and imitate their products while the life cycle of the new product is likely to be five years. Jack and Jill needs advice on setting the price, on pricing strategies and what are the effects of the demand on the pricing levels knowing that they a limited production capacity as they cannot produce more than 500 units per month. Analysis Market research reveals that the product will be well received and thus the demand may exceed production capacity that is limited to 500 units per month. We will consider each of the following pricing strategies: - Price Skimming: This strategy involve setting high price to exploit sections of the market that are sensitive to price change (inelastic demand). Recommendation: not recommended as there are close substitutes in the market and at this stage you have not established your name in the market. - Price Penetration: This strategy involve setting a low price to penetrate the market. Recommendation: not recommended as the low price will stimulate demand on the product when the company have a limited capacity to produce. This could also have two fold bad affects; reputation of the company by not being able to satisfy the demand and image of the product that could be perceived by the customers as a low quality product. - Middle Pricing: This strategy involves setting the price in...
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...*Price: The amount of money charged for a product or service, or the sum of the values consumers exchange for the benefits of having or using the product or service. > Major pricing strategies *Considerations in setting price [Figure 9.1], [Figure 9.2] -Customer perceptions of value = Price ceiling (No demand above this price) Assess customer needs and value perceptions -> set target price to match customer perceived value -> determine costs that can be incurred -> design product to deliver desired value at target price -Product costs = Price floor (No profits below this price) Design a good product -> determine product costs -> set price based on cost -> convince buyers of product’s value 1. Customer value-based pricing: setting the price based on buyers’ perception of value, rather than on the seller’s cost. a. Good value pricing: offering just the right combination of quality and good service that customers want at a fair price. E.g. Mcdonald’s offer value meals and dollar menu items. Small and less expensive models in Armani car companies. b. Value-added pricing: rather than cutting prices to match competitors, marketers adopting this strategy attach value-added features and services to differentiate their offerings and this supports higher prices. 2. Cost-based pricing: setting prices based on the costs for producing, distributing and selling the product, plus a fair rate of return for its effort and risk. E.g. Woolworth, Dell (lower...
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...“Is the right price a fair price?” Introduction What is price? It can have many definitions depending on the industry, product or service you are providing. Price is the amount of money charged for a product or service however price is an important element in the marketing mix. Price is the sum of all the cost that consumers exchange for the benefits of having or using the product or service. Companies has an obligation to itself, its shareholders and its consumers to determine the optimal price that results in sustained availability and results. Many companies are thinking that the lowest price is the best price but it depends on the product or service. Price itself can create a value perception and some companies on purpose increase their prices above their price parity competitor offerings and this creates a niche type market. Steps in Setting Prices The most important aspect to consider when setting price is customer value. When customers buy something, they are exchanging something of value in order to get something of value. In order for value to be received the benefits of the product or service must out-weigh the stated costs associated with the product or service many internal and external factors affect price. Internal factors include the firm’s marketing objectives, marketing mix strategy, and organizational factors. External factors that influence pricing decisions include the nature of market and demand, competition, and other environmental factors...
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...PRICE SETTING Worksheet Things to Take in Consideration When Setting Price| You should consider setting prices above your competitor’s prices if…|Yes|No|?| Your market is not sensitive to price changes.|||| Your market consists mainly of growing commercial customers.|||| Your product is an integral part of an established system.|||| Your reputation for status, service, and other positive perceptions in the market increases your products’ perceived value.|||| Your customers can easily build your price into their selling price.|||| Your product is only a tiny percentage of your customers’ total costs.|||| You should consider setting your prices just below your competition if…| Your market is very sensitive to price changes.|||| Your customers need to reorder parts or supplies.|||| Your business is small enough that a lower price will not threaten your larger competitors and start a price war.|||| You have the option of economical production runs which decrease your unit cost.|||| You have not reached full production capacity.|||| Estimating Demand| 1. Which products/services do customers shop around for?| 2. Which products/services are in greater demand even at higher prices?| 3. Are certain products/services in greater demand at one time of the year than another? If so, which? And what is the duration of the demand?| 4. Do your customers expect a certain price range?| 5. What is the balance between price and quality in your market?| The Competition| ...
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...CONSIDERATION IN SETTING RETAIL PRICES Customer Price Sensitivity and Cost As the Price of a product increases, the sale of the product will decrease, because fewer and fewer customer feels the product is a good value. The price sensitivity of the customer determine how many units will be sold at different price level Price Elasticity- a commonly used measure of price sensitivity or the percentage in quantity sold divided by the percentage change in price: ELASTICITY= Percentage change in quantity sold Percentage change in Price Competition- is the rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, distribution, and promotion. Collecting and Using Competitive Price Data Most retailers routinely collect price data about their competitors to see if they need to adjust their price to remain competitive. Competitive price data are typically collected using store personnel, but pricing also are available from business service providers. Reducing Price Competition Retailers attempt to reduce rice competition by utilizing some branding strategies. Legal and Ethical Pricing Issues * Price Discrimination- occurs when a retailer charges different prices for identical products and or/ services sold to different customer. Price Discrimination between retailers and their customer are legal. * Predatory Pricing- arises when a dominant retailer sets prices below...
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...10. Pricing decisions Factors to consider when setting prices All profit organizations and many non profit organizations must set prices on their products or services. Simply defined, price is the amount of money charged for a product or service. More broadly, price is the sum of the values consumers exchange for the benefits of having or using the product or service. A company's pricing decisions are affected both by internal company factors and by external environmental factors. These factors are shown in Figure 1. Internal factors include the company's marketing objectives, marketing mix strategy, costs, and organization. External factors include the nature of the market and demand, competition, and other environmental factors. Internal Factors Affecting Pricing Decisions Marketing Mix Strategy Price is only one of the marketing mix tools that the company uses to achieve its marketing objectives. We have coordinated our price decision with product design, distribution, and promotion decisions to form a consistent and effective marketing program. For our product the same price will be applied in different geographical areas. If a client wants to order our Lazzzerlight Product Machine from Spain or from China, there won’t be price differences. The price will remain the same no matter the country you live in. Of course, we are not responsible for the transport of our product, which means that the client must pay a transport fee according to the country...
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...the melamine infant powered milk scandal in 2008 was the unfair profit allocation mechanism in dairy supply chain. The revenue sharing contract approach has proven to be effective in generating market shares and total profits. In this study, we apply the three-stage revenue sharing contract model of Giannoccaro and Pontrandolfo (2004) in an analysis of dairy supply chain to explore its problems in profit allocation and possible solutions to them. The analysis was conducted by a case study of Hohhot, often called as “Milk capital of China”. Our results show that the current profit distribution in the dairy supply chain is not balanced: the supermarket’s profit > farmer’s profit > manufacturer’s profit. Under the revenue sharing contract setting, the dairy industry’s total profit increased...
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...University Peking University Durham, NC 27708 Durham, NC 27708 Beijing, China 100871 Forthcoming in European Journal of Operational Research The Internet has provided traditional retailers a new means with which to serve customers. Consequently, many “bricks-and-mortar” retailers have transformed to “clicks-and-mortar” by incorporating Internet sales. Examples of companies making such a transition include Best Buy, Wal-Mart, Barnes & Noble, etc. Despite the increasing prevalence of this practice, several fundamental questions remain: (1) Does it pay off to go online? (2) Which is the equilibrium industry structure? (3) What is the implication of this business model for consumers? We study these issues in an oligopoly setting and show that clicks-and-mortar arises as the equilibrium channel structure. However, we find that this equilibrium does not necessarily imply higher profits for the firms: in some cases, rather, it emerges as a strategic necessity. Consumers are generally better off with clicks-and-mortar retailers. If firms align with pure e-tailers to reach the online market, we show that a prisoner’s dilemma-type equilibrium may arise. Keywords: Supply chain management, Game theory, E-commerce, MNL model, Alliance 1 Introduction The rapid development of information technologies has provided new means for retailers to reach the end market. As substantially more consumers have gained Internet access and found it both convenient and secure...
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