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1、Chapter11PriceStrategies11.1FactorsAffectingPricing11.1.1PricingObjectives1.Profit-OrientedPriceObjectives2.Sales-OrientedPriceObjectives3.StatusQuoPriceObjectives11.1.2ProductCosts1.FixedCostsFixedcostsarethosethatarefixedintotal,nomatterwhatquantityisproduced.Amongthesefixedcostsarer
2、ent,depreciation,managers’salaries,andpropertyinsurance.2.VariableCostsVariablecostsarethosevariableexpensesthatarecloselyrelatedtooutput,includingexpensesforparts,wages,packagingmaterialsandsalescommissions.3.TotalCostsTotalcostsarethesumoftotalfixedandvariableones.Changesinthetotalco
3、stdependonvariationsintotalvariablecosts,sincethetotalfixedcostremainsunchanged.4.AverageFixedCostTheaveragefixedcostisobtainedbydividingtotalfixedcostsbytherelatedquantity.5.AverageVariableCostTheaveragevariablecostisobtainedbydividingthetotalvariablecostbytherelatedquantity.6.Average
4、CostTheaveragecostisobtainedbydividingthetotalcostbytherelatedquantity.11.1.3MarketDemandsBetweenthelowerandupperboundaryforeveryproductthereisanoptimumprice,whichisafunctionofthedemandfortheproductasdeterminedbythewillingnessandabilityofcustomerstobuy.Ifmarketsupplycannotsatisfydemand
5、s,priceincreases.Onthecontrary,whensupplyisbiggerthanmarketdemands,pricedropsconsequently.Meanwhile,priceaffectsmarketdemandsandsalesvolumesaswell.Therefore,organizationsshouldunderstandthedegreethatmarketdemandsareaffectedbypricingchanges.Priceelasticityistheindextoshowhowresponsivede
6、mandwillbetoachangeinprice.Thepriceelasticityofdemandisgivenbythefollowingformula:PriceElasticityofDemand=%changeinquantitydemanded÷%changeinprice11.1.4CompetitionPricingpoliciesaredependingonnotonlyreactionsofcustomers,butalsocompetitors.Competitionbehaviorchangeswhencompetitiveenviro
7、nmentandcompetitiveadvantageschangeindifferentmarketstructures.Therearefourbasickindsofmarketsituations:purecompetition,oligopoly,monopolisticcompetitionandmonopoly.Companiesapplydifferentpricingmethodsindifferentmarketstructures.Inpurecompetitionsituation,pricesaresetcompletelybythe
