1. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning

2. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning

3. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Demand is elastic where: Customers are relatively indifferent about the product or service There is high sensitivity to changes in price

4. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Demand is inelastic where: Customers place a high value on the product Demand is relatively insensitive to price

5. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning In the real world other factors come into play: Advertising Novelty Fashion Reputation

6. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Special competitive conditions: Monopoly Oligopoly Cartel Also NB: price setters and price takers

7. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Market-based pricing Cost-based pricing –Cost-plus pricing –Variable cost-based pricing

8. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Example: Binnie Fairweather Limited

9. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Binnie Fairweather Limited If the company is a price setter it may decide to charge £218 or even higher, based on such factors as: good brand name better quality marketing campaign

10. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning DISADVANTAGES Absorption costing may not provide an accurate picture of a product’s costs Absorption rate is set in advance; it may be inaccurate Emphasis on costs may mean that firms do not consider market conditions properly Inefficiency may be rewarded

11. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Accepting low prices Decision rule: an offer to buy should be accepted provided that there is a positive contribution to fixed costs BUT This approach can lead to very low prices (e.g. late rooms booking)

12. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Tendering Highly restricted supply of unique products Target pricing Discounting –Loss leaders Auction