Pricing Strategies and Cost Analysis

The provided assignment content discusses various aspects of pricing, cost analysis, and negotiation strategies in the context of supply chain management. It covers topics such as direct and indirect costs, psychological aspects of pricing, self-employment, value vs. cost, competitive bidding, profit calculation, learning curve phenomenon, and socially acceptable range of profits for selling firms. The content also references various academic studies to support its claims.

Chapter-13 discussion Questions

Answer 1
The components of pricing are following:
 Direct Cost: It is related to the actual production units. Material costs and labor costs are
considered as a direct cost.
 Indirect Cost: It is mainly related to non-manufacturing costs such as depreciation
expenses, property taxes, insurance and managerial salaries.
The main important psychological aspect is power. It is considered that powerful purchase could
force a supplier to minimize the prices of selling products (Wisner, 2014). Apart of it, marketing
mix is also considered as a major psychological aspect of pricing.
Answer 2
Price is considered the most important reason for negotiation because transaction between sellers
or buyers occurred on the basis of price. From a positional perspective, buyers want to purchase
goods at a lower price and with more values, whereas sellers want to gain the highest price for
their products. Each transaction of both sellers and buyers limited with their pricing boundaries.
Answer 3
Self-employment is not for everyone. It is the responsibility of the person that they should decide
whether they have the capabilities and entrepreneur skills to open their business or not. The
employment relationship is never developed in an efficient manner because effort towards
building relationship continuously proves renegotiable (R. Jadhav, 2014). If employees of an
organization feel underpaid or slighted, they always have a choice to reduce efforts to the point
where the resulting rate per month or per hour gives an acceptable return for the amount of effort
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expanded. Therefore provide salary package brings equity in the eyes of employees. Less
compensation to employees raises different problems for managers regarding the health of an
overall organization. Therefore, the manager feels a need to enhance the compensation package
of employees that link performance and incentives of employees with the objectives of the
organization. The risk factor in investment is measured by beta rather than probability.
Answer 4
The difference between value and cost is following:
 The cost of product and service is known as the sum which anyone spends on
manufacturing it. (Roberta Pereira, 2014) On the other hand, the value is known as
beliefs of the customers regarding the worth of services and products for them.
Negotiation importance:
 Helpful in developing healthy relationships
 Provide quality, lasting solutions- rather than vague and poor solutions that do not fulfil
the requirements of parties.
 Helpful in avoiding conflicts and future problems
Answer 5
Sizing up the pricing strategies of suppliers on their competitive positions is known as
competitive bidding. In the competitive bidding, the purchaser can also formulate the pricing
strategies of the selling organization (Monczka, 2015). If the sellers are selling their products in
their potential markets than the market of buyer organizations, price in that situation will be
higher than the other markets.
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Answer 6
Profit is calculated by deducting cost of goods sold from the total revenue. When the cost of goods is
known and the profit needs to be calculated, we need to subtract the revenue that we have earned
from the cost. This is how profit fits into the cost equation.
Answer 7
The cost breakdown is known as a situation when the purchaser of goods or services asks the
seller to furnish them with all cost related information. A buyer can convince a seller by
formulating a negotiating agreement. It is an agreement where both seller and the buyer ready to
share in the savings.
Answer 8
The below mentioned are some elements of cost-price analysis:
 Break Even Point: It is known as the calculated point in time. At this point, accumulated
development expenses match cost saving.
 Return on Investment: It is known as the ratio of projected cost savings or invested
amount.
 Itemized benefits: It includes both intangible benefits and tangible benefits (Wisner,
2014). But, in this global systems world, most of the benefits are intangible in nature.
Answer 9
Learning curve is considered as a concept utilized to evaluate how quickly a skill can be
mastered. Learning curve mainly represents the combination of the time it consumes to learn a
new skill set or idea. A buying firm is concerned about the effect of learning curve because it
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influences the competitive advantage of the firm in its existing market (Jaber, 2016). It is
because the learning capability of an organization makes it different from others and a learning
curve is an efficient tool which determines the capabilities of the organization to beat its existing
competitors.
Answer 10
The socially acceptable range of profit for selling firms are different as per the nature of business
such as a wood products selling firm has a profit margin of $ 3 million annually, and medical
equipment’s selling firm has a profit margin of $ 2 million (Cho, 2013). In the same manner, the
other selling organizations have different acceptable range of profits.
Answer 11
Cost play an important role in the negotiation process. To incorporate value in the negotiation
process, negotiator mainly utilizes total cost analysis approach (Barney, 2012). According to this
concept, the soft and hard costs of owning networked information assets is measured which
become valuable in conducting further negotiation process between buyer and seller.
Answer 12
Learning curve Phenomenon is known as a popular method mainly utilized to measure and
forecast the effectiveness of enhancing outputs (Jaber, 2016). The key behaviour of learning
curve represents a systematic labor improvement per unit. It is mainly exponential in nature that
represents a constant percentage of labor reduction. It is mainly utilizing in pricing, estimating
the change implications or cost estimating.
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Answer 13
The learning curve theory mainly based on three assumptions which are following:
 The learning matter is considered as a known quantity.
 It is especially helpful in conducting new operations where machines are not utilized for
the production process (Dar-El, 2013).
 It does not avoid the human element.
 The unit cost decreases with the decreasing rate.
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References
Mellat-Parast, M., & E. Spillan, J. (2014). Logistics and supply chain process integration as a
source of competitive advantage: An empirical analysis. The International Journal of Logistics
Management, 25(2), 289-314.
R. Jadhav, J., S. Mantha, S., & B. Rane, S. (2014). Exploring barriers in lean
implementation. International Journal of Lean Six Sigma, 5(2), 122-148.
Roberta Pereira, C., Christopher, M., & Lago Da Silva, A. (2014). Achieving supply chain
resilience: the role of procurement. Supply Chain Management: an international
journal, 19(5/6), 626-642.
Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and
supply chain management. Cengage Learning.
Wisner, J. D., Tan, K. C., & Leong, G. K. (2014). Principles of supply chain management: a
balanced approach. Cengage Learning.
Barney, J. B. (2012). Purchasing, supply chain management and sustained competitive
advantage: The relevance of resource‐based theory. Journal of Supply Chain
Management, 48(2), 3-6.
Jaber, M. Y. (Ed.). (2016). Learning curves: Theory, models, and applications. CRC Press.
Dar-El, E. M. (2013). Human learning: From learning curves to learning organizations (Vol.
29). Springer Science & Business Media.
Cho, S. H., & Tang, C. S. (2013). Advance selling in a supply chain under uncertain supply and
demand. Manufacturing & Service Operations Management, 15(2), 305-319.
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