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Factors considered in a Pricing Decision

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Introduction

(i) Factors considered in a Pricing Decision There are few factors that need to be considered when setting a price for a good or service: * The price offered by competition. * Pricing to high customers seek elsewhere. * Pricing to low costs may not be covered. * The price the customer is willing to pay. * The elasticity of the product see section (ii). * The power, the company has in pricing its good/service see section (v). (ii) The importance of Price Elasticity This is very important, it measures the sensitivity of the volume of goods /services sold to the price the company charges. A company has to find the elasticity of the good/service sold and set its price accordingly otherwise, charging too high then the number of goods or services sold will drop and vice versa and the costs may not be covered. * A good or service is said to be elastic if the change in price has considerable effect on the volume of units sold. ...read more.

Middle

(v) Rate of Return Pricing Benefits * This is a good form of pricing when new products are entering the market, and there is no competition. * Profitability of the product can be easily found Limitation * If the company wants to keep the target rate of return then it will have to keep changing the price as the demand for the product/service changes. * This pricing method is really only available to monopolies or market leaders due to no or very little competition and therefore the ability to chose prices. (vi) Monopoly power without monopoly pricing power Sometimes an industry is a natural monopoly. This type of monopoly is created as a result of circumstances over which the monopolist has no monopolist power such as pricing power. A natural monopoly may exist where a market for a particular product or service is so limited that its profitable production is impossible except when done by a single plant large enough to supply the whole demand. ...read more.

Conclusion

Principle budget factor for Chlor budget 2006 I believe that the budget factor should be employee costs; I believe the other factors, which can be budget factors cannot be controlled such as electricity prices, production costs and prices, the company faces problems with these costs, so it has to look elsewhere, where prices are stable and changeable. By planning and controlling employee cost the company can save out going cost thus becoming more efficient and either use the money to develop better manufacturing methods or build enhanced equipment/units. (x) Target costing at Ineos Chlor Target costing is where a cost is set before the product is designed so that the target cost can be accomplished in the designing and manufacturing process. This can be used in Ineos Chlor by them developing a target cost for the production of chlorine, then try to achieve it by cutting cost where possible, but mainly it can build more efficient units this intact with help Ineos save cost and reach there target costs ...read more.

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