last updated 2011 Feb 8
Consumer perceptions of the Quality and the price they are willing to pay
The text says "some consumer's perceptions of product and service quality vary directly with price. Typically the higher the price the better the quality is perceived to be".
However striving for high
quality is not so simple, there are things you might have to give up. as
see TQM page at www.witiger.com/internationalbusiness/TQM.htm
are realizing that they should set prices by evaluating the effect of a
price decision not only on the profit margin for a given item but also
on demand..." p. 482 Shapiro
used in B2B
2/10 - net 30
in a business to business (B2B) situation it is common to have to extend credit to customers who are buying parts, materials and supplies.
2 is the % discount
10 is the number of days
30 is the maximum number of days in which you HAVE to pay
2/10 net 30 means if you may before 10 days, you get a 2% discount
5/10 net 60
|Price Setting in the Real World - Most price structures are built around list prices|
||In the "Real World", most
manufacturers create a cost sheet for each product, then combining the
cost sheets leads to a price list for a group of products.
In the screen capture to the left you will see a real cost sheet used by a clothing manufacturing company - it is done in Excel so when various factors change, you can have the final cost calculation easily.
||If you click on the screen capture to the left you will see a real price list which has been composed from cost sheets. This Price List is the basics from which all price objectives come from - its is from the numbers on this list that you increase by 10%, 20% or 50% your price|
Markup percent is based on selling price
In the clothing industry it is usually 100% - this means if your calculated mfg. cost price of a garment is $20 - it will wholesale at $40, the retailer will mark it up to $80, or even $90 depending on the category.
"High markups don't always
mean big profits"
It is also important to note that the level of the mark-up depends on whether the product is a consumer product/service or an industrial product/service - BECAUSE,,,, consumer products/services often have more money spent on promotional expenses - therefore the need to recover this in a higher mark-up.
level of the mark-up depends on whether the product is:
|Stockturn rate (p.
If you spend a lot of money to acquire inventory - it will cost you
One of the best things you can do is "turn over" your stock quickly. Once or twice a year is bad, four or five times a year is good. Cash flow is sometimes more important that an absolute profit. When you turn over the stock, you get cash flow.
|There are three
kinds of total costs
- rent, utilities, agent commission, insurance
- things that do not change no matter how much you produce
- material, supplies, component parts, wages and salaries, shipping
- things that increase, when you increase production
- the sum of Total Cost + Variable Cost
There are Three Kinds of Average Cost
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