Advanced Management Accounting Essay

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12/05/2014 Pricing and Transfer Pricing External Pricing Decisions Factors: Costs Insource: reducing costs by establishing shared service centers within an organization or stopping contracting a business function. Outsource: reducing costs by allowing a third party to take on a function in an organization. Offshore: reducing costs by moving business processes to a foreign location. Relevant costing or incremental analysis helps with such decisions. source: External Pricing Decisions Factors; economic trend; market structures: External Pricing Decisions Pricing approaches: • Cost-based: full cost pricing = costs + profit markup • Demand-based: based on customer demand including skimming, penetration, value-based pricing and etc. • Value-based: value-based pricing = client perceived value (sold based on emotions (fashion), in niche markets, in shortages (e.g. drinks at open air festival at a hot summer day) or for indispensable). • Target-based: price is made and then costs are adjusted so that that price can be achieved. • Reverse engineering: disassembling an existing product to discover how to produce and price something similar. or sellers Price taker Some control Possible collusion Price maker Price maker source: source: External Pricing Decisions Factors: market demand; customer demographics & social class; perceived value of your product/service: Life cycle based pricing source: Low price Set low price at first to be increased. Set high price at first, then lowers the price over time with increased demand. High price

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