Key Business Concepts: Pricing, Control, and Performance

Fixed Costs

Expenses that do not change as a function of the activity of a business, within the relevant period.

Price-Elastic Demand Curve

When the price goes down a little, volume increases significantly. When the price goes up a little, volume decreases significantly. Many grocery items are price elastic.

Price-Inelastic Demand Curve

Volume does not change much, even with significant price changes. Products like critical raw materials, electricity, and heart pacemakers are price inelastic.

Tactical Pricing

Tactical pricing is the ongoing stream of pricing decisions the firm makes daily.

Pricing Toolkit

A set of pricing tactics for the firm to change a product's price.

Vision

A description of an ideal future state; an impressionistic picture of what the future should be:

Types of Visions:

• Corporate vision - Focuses on the firm.
• Business-unit vision - Focuses on the business.

Values

A common set of beliefs that guide the behavior of the firm's employees. Values can be:

1. Hard - like profitability and market share.
2. Soft - like integrity, respect for others, trust, and customer preeminence.

Category Management Organization

An evolutionary development of a product/brand management structure in which the firm manages multiple brands in a complementary manner. It is a retailing and purchasing concept in which the range of products purchased by a business organization or sold by a retailer is broken down into discrete groups of similar or related products.

Re-engineering

Examines fundamental assumptions about the way the firm conducts its activities. Seeks alternative approaches for redesigning and improving the firm's processes.

Post-Action Control

Firms using post-action control wait a preset time period, then compare actual results against standards. If results are unsatisfactory, they take corrective action. Firms exercising post-action control typically develop annual market plans and set standards by quarter, but increased environmental change and complexity are driving reduced time periods. Also known as feedback control, it focuses on the outputs of the organization after the transformation process is complete. Although post-action control used alone may not be as effective as preliminary or screening control, it can provide management with information for future planning. Post-action control also may be used as a basis for rewarding employees.

Steering Control

Steering control is dynamic, continuous, and anticipatory. Firms using steering control set standards for measures like sales, market share, and profit, then calendarize by month, week, or even day. These firms set control limits for performance and continually compare actual results against standards. Because they also track leading indicators, these firms are more market responsive. It focuses on the resources that the organization brings in from the environment. It attempts to monitor the quality or quantity of these resources before they enter the organization.

Factoring

A process by which the firm sells its accounts receivable for cash.

Direct Product Profit

Assesses profit performance after taking into account the fixed costs the product incurs. The firm separates fixed costs into two parts: costs directly related to the product, direct fixed costs (would disappear if the product were dropped); and allocated costs — indirect fixed costs (would remain if the product were dropped). Direct product profit equals profit contribution less direct fixed costs.

Product Contribution

The extent to which the product's sales revenues exceed variable costs.

Market Share

The most common market-based performance measure; compares the firm's sales units or revenues directly with competitors.

Customer Satisfaction

A marketing term that measures how products or services supplied by a company meet or surpass a customer's expectation.

Marketing Audit

The marketing audit is a comprehensive process for evaluating marketing practices — market strategy, systems and processes, activities, and organization. To ensure confidences are kept and findings are unbiased, outsiders typically conduct the audit. An objective independent organization.