Week 7 Discussion 1
“Understanding Costs” Please respond to the following:
Suppose you own a small business (e.g., a dry cleaner, local cafÃ©, housekeeping services), and there is a noticeable cost increase from a supplier, such as higher delivery costs due to an increase in fuel. What pricing decision(s) would you make?
RE: Week 7 Discussion 1
I choose to own a small cafe’. My menu will have a huge impact on costs, and subsequently on pricing. I will need to decide not only the type of food you are offering, but also whether I will be offering free bread and butter, the condiments you will offer, and what items will be included with each main dish. I will also need to compute the rest of your fixed and variable costs before I can set my prices. I would use a spreadsheet or specialized program to determine what prices I need to charge to break even. By changing prices in small increments and featuring high profit items as daily specials, you can design your prices to help you increase sales of certain items. One pricing strategy popular in cafes is to bundle several items together. For example, if you normally charge $3 for a large cappuccino and $5 for a sandwich, you can offer them together for $7. Customers will see this as a bargain, and it will help me to increase sales. I must keep in mind how much my customers are willing to pay. For example, if me and my competitors are both offering similar items, I will need to charge the same or less for those items, or make sure they are a higher quality.
RE: Week 7 Discussion 1
I am going to supposedly own a dry cleaner business. One of my suppliers would be bringing in packaging materials to cover up the clothes. If they went up on their price, then I would have to choose a company closer to the location of the dry cleaner. The company can invest in a van to deliver dry cleaning to a customers’ home and help pick up supplies from the supplier’s warehouse. Also, this can be used to pay for the price of gas and used as a tax write-off. One pricing decision is analyzing and researching the competition of successful dry cleaners. Another pricing decision can be promoting monthly subscriptions to be a dry cleaning member. Other pricing decisions come to mind are offering bundling deals to up to getting more clothes items in to get dry cleaned such as 2-3 outfits together under $100.00. There has to be the financial planning by knowing the incremental costs and avoidable costs of investing in a dry cleaning business. The variable costs vary from knowing how much the expenses are of doing business such as the rent, electricity, transportation, equipment, and other costs to run a business. The fixed costs will show how to plan exactly how much will be spent on the promotion of advertising, sales, and the same fees to run a productive dry cleaning business. Of course, all of the pricing decisions come down to targeting the appropriate demographics and psychological segments of understanding this industry very well to distinguish what are the real costs to charge customers.
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