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  • Cost Volume Profit Analysis

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    Shazia Kamran
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    This document discusses special pricing strategies for certain markets or customers. It notes that special pricing can be profitable in lower income markets where the cost of living is higher. It may also be used for more price conscious customers where the product is easily substitutable. Initially, special pricing may decrease revenues and profits slightly but in the long run can increase customer base, retain existing customers, and increase overall revenues and profits. Potential advantages include higher revenues and profits through economies of scale, while disadvantages include heavy initial discounting costs and potential customer distrust over quality. Relevant costs to consider include fixed costs, advertising, discounts, and promotions.

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    This document discusses special pricing strategies for certain markets or customers. It notes that special pricing can be profitable in lower income markets where the cost of living is higher. It may also be used for more price conscious customers where the product is easily substitutable. Initially, special pricing may decrease revenues and profits slightly but in the long run can increase customer base, retain existing customers, and increase overall revenues and profits. Potential advantages include higher revenues and profits through economies of scale, while disadvantages include heavy initial discounting costs and potential customer distrust over quality. Relevant costs to consider include fixed costs, advertising, discounts, and promotions.

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    © All Rights Reserved
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    3 views6 pages

    Cost Volume Profit Analysis

    Uploaded by

    Shazia Kamran
    This document discusses special pricing strategies for certain markets or customers. It notes that special pricing can be profitable in lower income markets where the cost of living is higher. It may also be used for more price conscious customers where the product is easily substitutable. Initially, special pricing may decrease revenues and profits slightly but in the long run can increase customer base, retain existing customers, and increase overall revenues and profits. Potential advantages include higher revenues and profits through economies of scale, while disadvantages include heavy initial discounting costs and potential customer distrust over quality. Relevant costs to consider include fixed costs, advertising, discounts, and promotions.

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    of 6

    SPECIAL PRICING

    COST VOLUME PROFIT ANALYSIS


    What about special pricing for some
    markets or customers?
    Reduction in the domestic price is  Special Pricing Strategy
    possible where the product is
    locally being manufactured as
    compared to the company’s
    international market.
    •Special pricing is profitable in
    markets where customers have
    lower income and higher cost of
    living.
    •Relaxation in price to those
    customers who are more price
    conscious in nature than brand
    conscious. This happens when a
    company’s product can be easily
    substituted in the market.
    Effect on revenues and profitability
    based on stated assumptions.
     A relative decrease in revenues at the beginning.
     Slight decline in company’s profitability at the
    initial stage.
     Later, the strategy will bring in new customers
    and also retain the existing customers that will
    result in higher profits, covering up the cost
    borne by the business under special pricing.
     A long term increase in revenue of the business.
    Potential advantages and disadvantages,
    both financial and non-financial.
    Advantages Disadvantages
     Financial  Financial

    1. Higher revenue and profits 1. Heavy cost of discounting to be


    with reduced cost of initially borne by the business
    production on attaining 2. Loss in case of lower response to the
    economies of scale special pricing strategy by customers
     Non-Financial  Non-Financial
    1. Increased customer base 1. Customers distrust that the company
    will also compromise over the quality
    2. Development of brand
    of the product at a lower price
    loyalty in existing
    customers 2. Losing existing customers
    Relevant costs to consider

     Fixed costs
     Advertising costs
     Discounting cost
     Promotion packaging cost
     Etc..
    References
     E-Myth Business Coach. (2005). The Impact of Pricing on Profits.
    Retrieved from http://www.e-myth.com/cs/user/print/post/the-impact-
    of-pricing-on-profits
     Jan, I. (n.d.).Special Order Pricing. Retrieved from
    https://accountingexplained.com/managerial/relevant-costing/special-
    order-pricing
     Miksen, C. The Advantages of Offering Discounts at Your Business.
    Retrieved from http://smallbusiness.chron.com/advantages-offering-
    discounts-business-25765.html
     Oakes, S. Should You Discount Price To Get Customers? Retrieved
    from http://www.m4bmarketing.com/discount-price-to-get-customers/
     VanAuken, B. The Advantage Of Price Segmentation. Retrieved from
    https://www.brandingstrategyinsider.com/2008/01/the-advantage-
    o.html#.Weo9YI-CwdU

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