2-1.1. Pricing Fundamentals

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Из курса от партнера University of Illinois at Urbana-Champaign

Accounting for Business Decision Making: Strategy Assessment and Control

33 оценки

University of Illinois at Urbana-Champaign

Accounting for Business Decision Making: Strategy Assessment and Control

33 оценки

Курс 4 из 5 — Specialization Fundamentals of Accounting

Accounting information is the lifeblood of the organization, as it facilitates and influences operational and strategic decisions intended to achieve organizational goals. Organizations benefit from three decision-oriented roles of accounting: measurement, control, and communication. This course provides an introduction to accounting’s role in helping managers develop and implement, and improve the organization’s strategy. In particular, you will learn how non-financial and financial information is created, organized, and communicated to help managers make strategic decisions, as well as measure strategic success. This course also provides an introduction to accounting as a control function inside the organization, which helps influence the alignment of managers’ and employees’ decisions with organizational goals. You will learn about different types of controls, including process controls, budgets, and performance measurement and evaluation tools and techniques. Upon successful completion of this course, you will be able to: • Create and communicate accounting information that facilitates strategic decisions. • Use accounting information to develop, implement, and improve organizational strategy. • Implement controls that align managers’ and employees’ decisions with organizational goals. • Measure and evaluate manager and employee performance to control and motivate operational and strategic decision-making. If you enjoy this business course and are interested in an MBA, consider applying to the iMBA, a flexible, fully-accredited online MBA at an incredibly competitive price offered by the University of Illinois. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

Из урока

Module 2: Managing Pricing

In this module, you will learn about accounting's role in pricing decisions.

2-1.1. Pricing Fundamentals4:02

2-1.2. Pricing Mechanisms3:48

2-1.3. Application and Extension4:03

2-1.4. What We’ve Learned0:31

Познакомьтесь с преподавателями

Gary Hecht, Ph.D.
Associate Professor of Accountancy
Department of Accountancy, College of Business

Welcome to the lesson.

By the end of this lesson, you should be able to identify the role of

pricing within an organization and its implications for profitability.

You should be able to identify factors that influence product price and

apply a variety of pricing mechanisms.

Now first off, let's talk about pricing at a general level.

Pricing determines the revenues generated by an organization.

Now that's kind of obvious, because when a product is sold,

the price is what's collected in exchange for that product,

which then gets added up into total revenues for a given accounting period.

But pricing also has an indirect affect.

Perhaps even more important than that first direct one.

If the product is priced inappropriately,

a customer may not turn to us to purchase the product.

They may go to a competitor.

And so in this case,

pricing also determines whether our customer purchase a product from us,

which has a long-run and a short-run effect on total revenues collected.

Now many factors influence how an organization prices it's products.

Three main categories are, customers, competitors, and costs.

With respect to customers, customers affect the demand for the product.

Perhaps this fluctuates over time.

Customer might really want the product at some point in time, but

then their interest may wane and they may move on to other products in the future.

The customers are the ones that access the value.

And that influences what they demand the products for.

And finally, there are specific drivers that customers are looking for.

Including quality, specific features, maybe something about our organization in

terms of reputation, the price itself, etcetera.

A second category is competitors.

Competitors affect the supply of the product.

They also effect the quality, features,

the reputation, the price of those products that exist in the marketplace.

And of course they might have existing relationship with customers.

They might have existing market share, or they might be have contracts with certain

costumers, which means that those customers are less available to us.

And finally, a third factor is costs.

Costs affect the ability of our organization to supply the product.

Basically costs provide a feasibility check on whether a product is profitable.

If our production process is too costly and

we can't charge a higher price due to customer's demand or competitors,

then perhaps this product is not necessarily the best one for us to sell.

Another factor is time horizon.

We can distinguish time horizon between the short-term and

the long-term, whatever that means for a particular decision or scenario.

In the short-term, some costs are irrelevant,

mainly because they don't change as a result of our decision.

Further, we can price a product to incur some sort of loss, but

only in the short term.

In the long term, pricing must provide profitability

that makes our investment in the capacity used to produce the product worthwhile.

There are some other considerations as well.

One has to do with alternative approaches to pricing.

You might think about how you differentiate your product,

which might command a different price than what our competitors are charging.

Or you might look at competitor's prices and differentiate based on that dimension.

There's also a legal perspective that often times comes to play.

In many jurisdictions,

there are anti-trusts, or competition-oriented laws and regulations,

that have some limitations on what type of pricing approaches we can adopt.

Price discrimination, predatory pricing, and

collusion are just some of these factors.

Details about these factors are beyond the scope of this course.

But I've included some readings alongside with these videos

that address some of these concepts.

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