Price calculation methods
Price calculation based on the definition of breakeven point , ie. the position of zero profit or zero losses, is shown in the break-even graph, illustrating the change in gross income, profit and total costs depending on the volume of sales (Figure 4.20).
Fig. 4.19. Price elasticity of demand
Fig. 4.20. Calculation of breakeven point
Any enterprise seeks to set a price that will provide it with the desired amount of profit. It is important to determine the optimal amount of the product produced. This method of pricing requires the enterprise to consider different options for prices, their impact on the sales volume necessary to overcome the break-even level and to obtain the target profit. It is also necessary to analyze the probability of breakeven at every possible price of the goods. The method is based on the selection of prices in terms of ensuring a given profitability and determining the break-even point. The profit is calculated taking into account all expenses and deductions made at its expense.
When using this method, you need:
o estimate the total costs for different volumes of output of the goods;
o to estimate the expected volume of the release of goods during the planned period;
o determine the profit necessary to ensure the life of the enterprise and the payment of all mandatory payments.
However, this method has some drawbacks:
o use to determine the price of output, which itself, in turn, depends on the price of the goods;
o the lack of consideration of the relationship between price and demand, resulting in the price may be too high or too low.
List prices are a kind of reference price and are published in the price lists of vendors. They are included in a special systemized collection of penalties (fees) for groups and types of goods and services - price list (German preiskurant, from kreis - price and French courant - current ).
The list price is set for serial or mass production, as a rule, without specifying the term of their validity. For example, in the USSR, list price retail prices were used for the sale of goods through state and cooperative retail trade.
At list prices, minus trade discounts, vendor settlements with trading enterprises and organizations are made. Listed wholesale prices for production goods are used when calculating suppliers with enterprises and organizations-buyers. These can be set to premiums (discounts), if the delivered products are manufactured at the request of the customer with deviations from current standards and specifications. Observance of the list price is mandatory for all suppliers of products and trading organizations.
The method of price determination through competitive bidding is used in cases of firms fighting for contracts. The enterprise is based on the expected price offers of competitors. And because it aims to get a contract, the company for this is asking for a price lower than others.
Competitive bidding can be closed or contractual. The procedure for conducting a closed auction assumes that they occur at a certain time, and the winner is the participant who offered the lowest foam at that time. The competitor does not know about the price of others until he calls his own.
In contract negotiations, negotiations are usually conducted with participants who offered a low price in order to achieve a reduction in the final bid price. The participants themselves in determining their prices are guided by the prices of competitors, but the price of the offer should not be lower than their own costs (full or marginal), depending on the situation prevailing in the enterprise.
The procedure for determining prices through contractual bidding is more typical for private corporations than for public ones.
The purpose of all methods is to narrow the price range, within which the final price of the goods will be chosen. When establishing the final price, it is necessary to take into account the whole set of influencing factors: state regulation, the psychology of pricing, the possibility of impact through various methods of competition (price and non-price, legal and illegal).
As EP Golubkov points out, "it must be remembered that the consumer does not care about the costs of production - this is the concern of the producer. If you want to survive in a competitive struggle - reduce costs and go out on this indicator to the modern level & quot ;. In this respect, marketing is very democratic: the buyer votes with his money for a particular product, making his choice based on comparing the price of the product with its value, utility. This is the basis for the approach to determining the price based on the buyer's opinion.
The pricing policy is heavily influenced by competitor prices and their possible reaction to the changing of the chains in the market. Studying competitors' chains is an important element of pricing activity. When the price of a competitor's chain is based, costs or demand ceases to be decisive factors, especially when it is difficult to measure the elasticity of the latter; determine the impact of price changes on demand.
Holding a certain price policy by the state is necessary and expedient. This is due to the fact that in a market economy, there is a need to provide internal means to achieve overall economic efficiency.
In modern conditions, the regulatory impact on the economy has not only the state, but also private monopolies. Thus, the regulation of the economy is carried out on two levels - macro level (state entity) and micro level (subject - private firm). The market strategy of a firm depends on how the state conducts its economic policy.
The peculiarities of the interrelation between companies and the state leave an imprint not only on the nature of the economic and social relations of modern society, but also on the mechanism for its regulation.
The state and private companies perform their functions to regulate economic life not in isolation from each other, but in close unity. The more companies under the influence of the development of the productive forces objectively contribute to the increase in the degree of socialization of production, the more often they are forced to resort to state help to preserve their domination and the closer their interaction becomes.
However, this interaction should not be understood as one-sided, only as a result of monopolization of the economy.
The most important is the change in the economic role of the state. The state creates a diverse toolkit, through which it interferes with the processes of economic activity. As the monopolization of the economy grows and the degree of its generalization increases, the state must take on important functions of mobilizing capital and managing the production process, which companies, limited by the framework of the corresponding form of ownership, are not able to perform.
Forms of relations between the state and private companies. The regulation of the latter's activities is very uneven, which manifests itself in the periodic increase or weakening of the significance of the individual elements of this mechanism.
Also We Can Offer!
- Argumentative essay
- Best college essays
- Buy custom essays online
- Buy essay online
- Cheap essay
- Cheap essay writing service
- Cheap writing service
- College essay
- College essay introduction
- College essay writing service
- Compare and contrast essay
- Custom essay
- Custom essay writing service
- Custom essays writing services
- Death penalty essay
- Do my essay
- Essay about love
- Essay about yourself
- Essay help
- Essay writing help
- Essay writing service reviews
- Essays online
- Fast food essay
- George orwell essays
- Human rights essay
- Narrative essay
- Pay to write essay
- Personal essay for college
- Personal narrative essay
- Persuasive writing
- Write my essay
- Write my essay for me cheap
- Writing a scholarship essay