Assigmnt 3

Assignment # 2 – Implementing Pricing Strategies

Jeffrey Evans

Mkt 402

Professor Yolanda Humphries

02/26/2012

Abstract

      Implementing pricing strategy decisions requires properly addressing organizational issues related to how decisions are made and enforced as well as motivational issues that encourage managers to engage in more profitable behaviors.

      Pricing decisions are strategic and critical to the success of your company. The prices you charge for your products affect demand, thus causing a ripple effect across your company's output, revenues, costs, and income. With a sound pricing strategy, your company is in a better position to perform

Contribution is calculated based on price and costs.  Often, we treat these variables as fixed.  What are the implications of treating uncertain variables as fixed? |

Contribution Pricing takes into account that different products within a company might need to be priced using different criteria. For each product, a price is set in relation to the direct costs of producing that product and any contribution that the business wants that product to make towards covering its indirect cost and towards profit. No one product will be expected to account for all the indirect costs of the business. Each product’s selling price would make some contribution to meeting indirect costs. For a given product, the greater your percent contribution margin, the more flexibility you have to set higher prices for some customer segments and lower prices for other segments. This enables you to serve not only customers who are willing to pay premium prices but also customers that are price sensitive and only willing to pay lower prices.  Many companies strategically design their cost structure to ensure that their variable costs remain low so they can maintain a high percent contribution margin, which enables them to penetrate many market segments of varying price sensitivities.

What are examples of conflicting...