Pricing, target costing and Customer profitability analysis
18 important questions on Pricing, target costing and Customer profitability analysis
3 Major influences on pricing decisions
2. Competitors
3. Costs
Impact Competition on Pricing decisions
Impact Cost on Pricing decisions
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Alternative long-run pricing approaches
2. cost-based (also referred to as cost-plus)
Both approaches consider customers, competitors, and costs. Only their starting points differ.
In industries where there is more product differentiation, companies have some discretion over prices, products and services. Companies choose prices and product / service features based on the anticipated customer and competitor reactions.
Target cost per unit
All costs (both variable as fixed) are included, because in the long run, a companies prices and revenue must recover all its costs.
Target cost per unit = Target price - Target operating profit
Note: Target cost per unit is often lower than the existing full product cost per unit. To achieve the target cost per unit and the target operating profit per unit, the company must improve its products and processes.
2 Key concepts in Value engineering / Managing (non)value-added costs
2. Locked-in costs
Locked-in costs (also Designed-in costs)
When costs are not locked in early, cost-reduction activities can be successful up until the time the costs are incurred.
The key to lowering costs could be a better design, improved operational efficiency and productivity.
Indien Locked-in costs = Hoog
- veelaandachtaanontwerp : voorafbeperken!
Indien Locked-in costs = Laag
- veelaandachtvoor operationele efficiency / productiviteit
Advantage in using a cross-functional team
functions.
Target rate of return on investment
Full product costs
Advantages in including fixed cost p/u for pricing decisions
Focus lies on the bare minimum costs needed to recover to continue business
2. Price stability Limiting the ability of managers to cut prices
3. Simplicity A detailed analysis of cost behaviour patterns (separating fixed and variable components)
is not required
Product life cycle
Cost categories in Life-cycle costing to determine profitability of a new product
2. Product Planning
3. Concept Design
4. Customer Service
3 Important benefits to product life-cycle reporting
2. Visibility differences among products (% of total costs) at separate stages
3. Interrelationships among business function cost are highlighted.
+Alle opbrengsten en kosten per product zichtbaar
+Verschillen tussen producten en % kosten in begin van life cycle
+Interrelatie tussen business functies wordt zichtbaar
Customer profitability analysis
Customer cost hierarchy
Assessing customer value
2. Likelihood of customer retention
3. Potential for customer growth
4. Increases in overall demand from having well-known customers
5. Ability to learn from customers (source for ideas for new and improved products)
1. Winst per klant in geld
2. Winstgevendheid lange en korte termijn
3. Kans op klantenbinding
4 Groei potentie klant
5. Kansen door gerenommeerde klanten
6. Kans om te leren van klanten
Inkomsten per klant
* omzet
* korting
Kosten per klant
* Unit level
* Batch level
* Customer-sustainingcosts
* Distribution channelcosts
* Corporate-sustainingcosts
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