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Summary of the topic - Competition

HA2 - Hospodářská angličtina 2

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Vyučující: Mgr. Dita Gálová

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Competition A major issue in achieving competitiveness faced by companies is deciding how to price their goods, particularly new products. Clearly, they will need to recover all the investment which has been made to develop the product and to equip their manufacturing facilities. But as well as doing this, unless they have cornered the market with a completely new product, they will need to get the price right to be competitive. ESTABLISHING A PRICE The total cost of a product is made up of its variable costs, e.g. raw materials, and the contribution it makes to fixed costs, e.g. rent. Ideally, the developers hope to sell enough goods to recover quickly their development and set-up costs. This may be an unrealistic expectation as customers may not be prepared to pay a sufficiently high price for the product. As we know, there is usually a direct relationship between the price something costs and the demand for it. The stronger this relationship, the more elastic demand is. Businesses should remember that customers are totality uninterested in a company’s costs — all that concerns them is the benefits a product provides. Customers have to believe that the price is a reasonable reflection of these benefits. This may mean that firms cannot set the price as high as they would like, and will have to wait a number of years before they have sold sufficient units to recoup their original investment. Each unit sold will make a contribution to the fixed and set-up costs. Once a product has sold enough units, it will eventually move past the break-even point and start to make a profit for the business. SKIMMING However, with a new and innovative product a business may be able to adopt a skimming policy, which allows it to recover its initial costs quickly. The company sets the price high knowing that some customers are prepared to pay a high premium to get the product. These customers, early adopters, will help the company recover its development costs early on. Each unit sold makes an important contribution towards covering the initial costs. There are two main dangers of this approach. Firstly, customers, even potential early adopters, may refuse to pay such an elevated price. Secondly, competitors may imitate t

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Vloženo: 2.10.2009

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Reference vyučujícího Mgr. Dita Gálová

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