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PRICING DECISION AND RISK DECISION MAKING

Presented by: Group 3

PRICE
WHAT IS PRICE? Price is a reflection of the quality, image and value for money of a product or service. So, the management should make pricing decisions in the context of overall business objectives and strategies.

PRICING OF GOODS AND SERVICES


The main objective of a firm is to maximize profit for that they determine their selling price and quantity which equates marginal price with marginal cost (i.e. MR=MC).

PRICING STRATEGIES
Stay Out Pricing Price Lining Psychological Pricing

PRICING DECISIONS
Pricing decisions are affected by a number of key factors. The two major factors are the COST and DEMAND.

Cont d. Other factors affecting pricing decision


include: (a) frequency of purchase. (b) stage of the product in PLC. (c) method of distribution. (d) number of substitutes. (e) range of products. (f) level of competition. (g) product positioning. (h) target rate of profit. (i) Government policies.

Cont d.
Arriving at the correct price involves, examining a number of financial and non-financial variables, placing these variables in the context of the overall business environment and finally relying on a healthy dose of experience and judgement.

Contd .
Pricing involves six general steps: 1.Analysis of market conditions. 2.Identification of constraints. 3.Establishment of objectives. 4.Analysis of profit potential. 5.Determination of initial price level. 6.Adjustment and management of prices.

DECISION MAKING
Important Characteristics of Decision Making: A decision can be made by an individual or a group. Even a brief decision making process can be both logical and complex. Information is an indispensable element of the decision making process.

RISK-DECISION MAKING
WHAT IS RISK-DECISION MAKING? A condition of risk is said to exist when a decision must be made on the basis of incomplete but reliable factual information. Most decisions facing the manager involve condition of risk. In a risk situation, factual information may exist, but it may be incomplete. Managers in this situation can estimate the likelihood that each alternative will achieve the desired outcomes by means of

Contd .
There are different types of risks: 1.Risks of competition. 2.Technological risk. 3.Business cycle risk. 4.Government policies and actions.

LIMITATIONS OF RISK DECISION MAKING


Profit is not the outcome of only risk taking. A part of the profit arises because of the ability and efficiency of the entrepreneur. A part of the profit arises from innovation. Profit also arises because of the monopolistic position enjoyed by the firm. Profit also arises because of the differences in the abilities of different

Cont.
On the basis of insurance the risks can be broadly divided into : 1.Insurable risks these can be avoided by insurance, hence insurable risk cannot give rise to profit. 2.Non-insurable risks these cannot be avoided with the help of insurance. These non-insurable risks have been described as uncertainty. These risks can give rise to profit.

CONCLUSION
Pricing decision depends upon two major factors : COST and DEMAND. Risk is associated with the profit and rewards As is rightly said:

NO RISK, NO GAIN