...Business & Industrial Marketing Emerald Article: Activity-based costing: a powerful tool for pricing John C. Lere Article information: To cite this document: John C. Lere, (2000),"Activity-based costing: a powerful tool for pricing", Journal of Business & Industrial Marketing, Vol. 15 Iss: 1 pp. 23 - 33 Permanent link to this document: http://dx.doi.org/10.1108/08858620010311539 Downloaded on: 05-04-2012 References: This document contains references to 4 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 4868 times. Access to this document was granted through an Emerald subscription provided by CAIRO UNIVERSITY For Authors: If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service. Information about how to choose which publication to write for and submission guidelines are available for all. Additional help for authors is available for Emerald subscribers. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.com With over forty years' experience, Emerald Group Publishing is a leading independent publisher of global research with impact in business, society, public policy and education. In total, Emerald publishes over 275 journals and more than 130 book series, as well as an extensive range of online products and services. Emerald is both COUNTER 3 and TRANSFER compliant. The organization is a partner...
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...Virgin Mobile 1. Given Virgin Mobile’s target market (14 to 24-yeard-olds, how should it structure its pricing? The case lays out three pricing options. Which option would you choose and why? In designing your pricing plan, be as specific as possible with respect to the various elements under considerations (e.g. contracts, the size of the subsidies, hidden fees, average per-minute charges, etc.) 2. How confident are you that the plan you have designed will be profitable? Provide evidence of the financial viability of your pricing strategy. 3. the cellular industry is notorious for high customer dissatisfaction. Despite the existence of service contracts, the big carriers churn roughly 24% of their customers each year. Clearly, there is very little loyalty in this market. What is the source of all of this dissatisfaction? How have the various pricing variables (contracts, pricing buckets, hidden fees, off-peak hours, etc.) affected the consumer experience? Why haven’t the big carriers responded more aggressively to customer satisfaction? 4. How do the major carriers make money in this industry? Is there a financial logic underlying their pricing approach? 5. What do you think of virgin Mobile’s value proposition (the VirginXtras, etc.)? What do you think of its channel and merchandising strategy? 6. Do you agree with virgin Mobile’s target market selection? What are the risks associated with targeting this segment? Why have the major carriers been slow...
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...add a happy meal option allowing parents to purchase child sized portions of breakfast items. This option could help McDonalds to increase profits by attracting more consumers. Shareholder reports show a quarterly cash dividend per share increase of 15% and annual dividend of $2.80 per share. Comparable sales grew 5.6%. Cash by operations increased $808 million to $7.2 billion. Return to shareholders $6.0 billion (McDonald’s.com, 2012). Elasticity of demand and the market structure for the company’s good or service. * Profit-maximizing quantity is figured by determining the elasticity of the product. * By dividing the change in quantity sold by the corresponding change in price, you get a coefficient that tells you how elastic or inelastic your product is – with coefficients between zero and one being inelastic and coefficients greater than one being elastic. * The elasticity of this particular product is determined by the individual instead of the population. Considering this fact, fast food is considered an elastic good. An elastic good is more of a luxury, and fast-food is not a requirement to survive. * An elastic good, the price must be set at a reasonably low level to increase the revenue. * McDonalds can use the formula of marginal cost = marginal revenue to determine its pricing. Demand is elastic when it is easily affected by the raising or lowering in the price of a product or service. * When McDonalds raises its...
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...retail grocery store chain was purchased. The superior supermarket chain was acquired in 1975.The Hall distributed food and related products to some 150 company owned supermarket units operating under three supermarket chain names through 12 wholesale distribution centers.By year 2002 also,1,100 independent store also supplied by Hall distribution in Unites States. In the year, the sales were $2.3 billion. In supermarket chain owned by Hall consolidated, Superior supermarket is the smallest compared to three supermarket chain in Hall consolidated. The superior gained with sales of 192.2 million in year 2002.In trade areas with small cities and towns in South Central Unites States, the superior served them conventionally. The median size is about 44,000 square feet in United States. So the superior is considered small because the areas of the superior supermarket just cover about 20,730 square feet. Even though the size is small, the superior was the number 1 or number 2 in ranking of supermarket chain in each of its trade measured by market share. The figure 1.1 below had shown the front view of superior supermarket. Figure 1.1: The view in front of Superior Supermarket. 2. OBJECTIVES 1) To decide whether to change the pricing strategy to be lower price or to continue the current pricing strategy. 3. CONSTRAINTS 1) Competitors ( 3 major establish supermarket) The three major competitor...
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...availability of capital and markets, and finally activity based costing. The purpose of this study is to summarize and analyze the implementation of ABC in the banking industry. Total quality management (TQM) is a process of continuous improvement that focuses on increasing customer satisfaction. TQM is founded on the principle that every customer (internal or external) has a set of spoken or latent needs or requirements. The ultimate objective of TQM is to improve the horizontal linkage of operations to produce a product or service. ABC is a fundamental factor in implementing TQM. The implementation of TQM is greatly facilitated by analyzing organizational activities, linking activities to business processes, evaluating cost of quality (prevention, appraisal, and failure), and determining customer perception of value (valueadded activities). A value-added activity is required to meet customer requirements, modifies or enhances raw materials, is a critical step in getting the product or service to the customer, and adds value that customer might be willing to pay for. If the activity is determined to be a non-valueadded activity, one of four things should happen: activity reduction, activity elimination, activity sharing, and activity selection. Not only does ABC support total quality management, but it also supports process value analysis and benchmarking. ABC has been used mainly by manufacturing companies, but recently it has been implemented in service, as well as merchandising, companies...
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...Both definitions are basically stating the same thing as customers are have limited options when purchasing or selecting meals, they are basically constrained with the places they eat, when they eat, where they eat and the prices they are being charged. Within a captive market there is no competition for business as there might be limited suppliers offering the products or if offered it may be so expensive that the customer cannot afford it. Also there could be limited or no alternatives for consumers. A captive market can manage to exist in the following situations shortages, customer are unable to obtained products in sufficient amounts that they require, high prices of competing restaurants making it impossible for customer to dine or even think about dining. It could also be that there is lack of competition meaning no one else offers that product in that area or that the product is scarce and only one supplier offers it and it may be at a ridicule price. Last but not least the unique features or benefits of the restaurant that customer would go the extra mile to do business with them despite the price the product is offered at. Therefore Captive market applies to any market where there is a monopoly...
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...Costco Case Study The chief elements of Costco’s strategy are low pricing, limited product selection, and a treasure hunt shopping environment. • Pricing: a key element of their pricing strategy is to cap its markup on brand-name merchandise at 14% and markups on their private label items can be no higher than 15%. This strategy keeps customers coming in to shop by enticing them with low prices. • Product Selection: this portion of the strategy only provides members with a selection of about 4000 items. Their product range covers a broad spectrum but the selection in each product category is limited based on fast-selling models, sizes, and colors. • Treasure-Hunt Merchandising: while the product line consists of 4000... Costco goes out of its way to surprise and excite its visitors with limited availability designer items. This solves two major challenges faced by warehouse stores – with products sold in such huge quantities, why visit regularly and why buy now. While Costco strives to beat the competition’s pricing, it also delivers exceptional value in its high-end offerings and customer service, giving consumers more for their money. This strategy works well for Costco, given its customers are the most affluent of all the warehouse clubs, with average incomes around $75,000. However, these customers are also value conscious, as evidenced by the members who opt for executive memberships, although it costs more per year, to take advantage of a 2% discount on most...
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...demand of our products. We are also going to graph a demand and supply curve in order to more accurately forecast our demand. Demand Estimation As an analyst for the leading brand of low-calorie, frozen microwavable dinners my boss has asked me to produce a demand estimation using existing data. We are trying to forecast how to price our products to increase our sales by taking independent variables and estimating how elastic they are in relation to our products. We are also going to determine our demand and supply curve to further our knowledge for more accurate forecasting. Elasticity for Independent Variables We wanted to see how elastic the demand for our product is by using data from 26 supermarkets around the country for the month of April. When referring to the elasticity of demand we are trying to determine if prices changes to our product will help us to sell more of our dinners. To do this we used a regression equation. We then computed the elasticity’s of several independent variables that would have an impact on our sales. The independent variables that we used were the price of the competitor’s product, the per capita income of the area nearest the supermarkets, monthly advertising expenditures and the number of microwave ovens sold in the chosen supermarkets. The following equations show just how elastic each independent variable is in relation to our microwaveable dinners. Value of Independent Variables P = Price of the product = 500 cents per...
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...ATLANTIC COMPUTER: A Bundle of Pricing Options Case# 4, Donny Hamilton June 29th, 2014 ATLANTIC COMPUTER: A Bundle of Pricing Options Case# 4, Donny Hamilton June 29th, 2014 Problem Definition: We need to develop a pricing strategy for our ‘Atlantic Bundle’ – the new Tronn Server and the PESA (Performance Enhancing Server Accelerator) software before the SME trade show.ATLANTIC COMPUTER: A Bundle of Pricing Options Case# 4, Donny Hamilton June 29th, 2014 ATLANTIC COMPUTER: A Bundle of Pricing Options Case# 4, Donny Hamilton June 29th, 2014 Basic Server Market Details: * Advent of Internet: Need of low end Performance servers or Basic Servers * Collection of these basic servers could support a company’s website * Market Demand expected to be 50,000 unit in 2001 Product: * Tronn: Server developed to cater to the Basic Server Market * We will bundle the products together! Alternative Development: Competitors: * Major Competitor: Ontario Computer Inc. * Low End Server Zink, currently 50% markets share in the basic server market * Majority Sales were generated online * Zink’s server performed at approximately the same level as Tronn’s * Rest of competitors were Local Vendors Key Factors Influencing the Pricing Strategy: * Status Quo Pricing: Matzer believed that as per the company’s traditional Software, should be given for free with the purchase of the hardware * Cost Plus Pricing: According to Matzer’s standard...
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...Keurig The word Keurig derives from the Dutch word meaning excellence. Keurig, Incorporated began with the company’s inception in 1992 (Kerin & Peterson, 2007). Gourmet coffee is a growing trend throughout the world. Keurig Incorporated was founded on the inspiration that coffee lovers should be able to brew and enjoy once perfect cup of coffee at a time (Kerin & Peterson). Excellence had been the guiding principle behind the development of its products and services. With gourmet coffee houses popping up in many areas, consumers were spending at least $1.50 more for one cup of gourmet coffee. Keurig’s launch of the single cup brewing system in the office coffee service market in the late 1990’s had benefited from coffee drinkers consistent increase of sophisticated drinks. In 2002 Keurig became the leading name in office coffee service by shipping over 33,000 units. In February 2003 Keurig was ready to launch their new B100 system targeting the at home segment all in hopes of gaining the same success Keurig found in the office coffee service, in a more competitive market (Kerin & Peterson, 2007). With the competition entering the single cup brewing market, Keurig had to think fast if they wanted to succeed in the Home market (Kerin & Peterson, 2007). Nick Lazaris, President, Chief Executive Officer and Director of Keurig, had to make the decision as to proceed with a two Keurig-Cup (K-Cup) strategy; this decision had the potential to...
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...If a single pricing strategy is used, the total revenue of the supplier is the area P2 C Q2*O. If a second degree pricing discrimination is used, the supplier charges a cost P0 for the first Q0 items (point A), a price P1 for Q0 to Q1 items (point B) and a price P2 for Q1 to Q2* items(point C). Thus by charging different prices for different quantities of items bought, the supplier is able to increase his revenue as indicated by the shaded portion. The cross dashed lines indicate the increase in revenue by following second degree price discrimination. Fig: Second Degree price Discrimination Thus, using second order price discrimination, the supplier gets to reduce the consumer surplus and increase his revenue by selling the same quantity of products at different prices to consumers. Third Degree Pricing Discrimination: In order to maximize total profits, the firm must sell in each market until MR1 = MR2 = MC will then involve selling the product at a higher price in the market with the less elastic demand. The firm will maximize its total profit by selling the product in each market until MR1 = MR2 = MC. Fig: Third degree price discrimination Assume the firm operates in two markets, A and B. The demand in market A is less elastic compared to that in B. Thus, the firm can capitalize on the less price elastic market A by charging it a higher price for the same product than in market...
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...The 4Ps Price Cotton On uses different pricing strategy. First, that is the penetration pricing strategy. The pricing was relatively low at the start of the business. However, after the improvement of designs and advertisement with more new stores, the pricing started to increase as it has become more known around the world. Secondly, it is practicing the psychological pricing. The prices are set at HKD$149 or HK$119 and so on, to let the customers feel the pricing is “cheaper” in a sense. Third, that is the bundling pricing. Cotton On advises its customers to buy more, like getting 2 tops for HK$130, while HK$79 for one. Fourth, that is promotional pricing. There are big sales in the selected seasons, such as Easter sales, and also the CNY sales. Place It has opened different stores all over the world, like Australia, Hong Kong, Malaysia, Singapore, Philippines, Thailand, Brazil and so on. The shops are located in the area that young people usually go for shopping. Product The products are targeting the youth with the fast changing fashion trends, with the wear-to-go outfits with quality but affordable prices. Clothing, shoes and other products are designed by a design team in Australia with more than 60 designers and trend forecasters. The turnaround time between the designing and manufacturing is two to eight weeks. Every quarter, each brand will conduct the range reviews. New products are sent to stores every day and new ranges are sent every week. Promotion Cotton...
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...Bargaining power of buyers is the next force which a firm is reliant on customers. There is a very high demand currently for Apple products and what gives them a great advantage is that customers see them as a unique product, where the substitutes, for instance, Dell, HP, IBM, etc just do not compare. The iPod and iPhone Most iPods except for the “Classic,” rely on flash memory instead of a hard drive for storage. The benefits of flash memory are reliability, form factor, and energy consumption. Realizing the significant benefits of flash memory for portable media devices, Apple formed long-term relationships with Samsung, Intel, and Micron, and by mid-2007 commanded about 25% of worldwide flash production (Apple Inc., 2008, Harvard Business Case). As for the iPad and the tablet market, it turns out that Apple has secured about 60% of global touch panel capacity, with a focus on 10-inch displays. Some have speculated that this has forced some competitors to initially focus on devices with 7-inch screens, such as Samsung with its Galaxy Tab. The effect of commanding such a large portion of the worldwide supply of a key component for a product is that: First, because Apple is buying these components in such large quantities it can exercise significant leverage over suppliers. This leverage enables Apple to negotiate favorable terms and pricing. For instance, South Korean Fair Trade officials alleged that Apple struck a special deal with...
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...Apple Pricing Review Apple iPod – When introduced on October 23, 2001, the original iPod costs $399 and included 5GB of storage capacity. Shortly after the original iPod introduction, Apple announced a 10GB iPod for $499 on March 20, 2002. Given the new product introduction of the iPod, the excitement surrounding the iPod justified the prices demanded, and Apple had no difficulty moving product. In July 2002, a 20GB iPod was introduced for $499; however, Apple lowered the price of its 5GB and 10GB to $299 and $399, respectively. When the iPod was early in its product lifecycle, Apple was able to charge a premium price; however, once the initial excitement of the iPod had exhausted, Apple realized they could no longer sell at its initial premium pricing. I think Apple also realized that there was a price ceiling for an iPod, and anything over $500 would not be well received by the marketplace; this forced Apple to drive down the asking price on iPods. Apple has been able to manage pricing of its iPods by offering different models (Original, Shuffle, Nano, Touch, etc.), as well as different storage capacities (2GB, 4GB, 10GB, 20GB, 30GB, etc). By offering various models and storage capacities, Apple can market an iPod in just about every price category. Apple has been able to uphold its iPod as superior to competitors, so is able to charge a premium for its product. As a result, I think Apple has been very successful in managing its price, because they’ve accomplished...
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...FAQs Q: What is energy deregulation? A: Deregulation of the energy industry, or Energy Choice, separates the supply portion (the actual energy you consume), from the delivery function (the infrastructure that gets that energy to your business). Under deregulation, you must remain with your local utility for the delivery function (they manage the pipes and wires and respond to emergencies and outages), but you can shop for your energy commodity through various suppliers. Because it’s a competitive environment, you can choose a product structure that fits your needs at a price with which you feel comfortable. Synergy can help you shop for the best opportunity, as well as deal with your utility on billing and meter issues. Q: Under deregulation, does the reliability of my service change? A: No, your utility remains regulated by state agencies and will provide the same safe, efficient delivery to which you’ve grown accustomed. Q: Who do I call in case of electric/gas emergency or service disruption? A: Your utility is responsible for the delivery of energy to your facility. You should contact your utility directly in the event of any energy-related emergency or service disruption. Q: If I choose an alternate supplier through Synergy, who will send me the bill? A: That depends on your service territory, local utility, and rate class. You will either, 1) Continue to receive one bill from your utility company, with your energy supply charges included in the total, or 2) Receive two...
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