Penetration pricing – set price low initially, (attract customers)
Loss leaders – making a loss on some products to help other products?
Kaizen – process where product undergoes cost reduction “improvement” – everyone involved). A process where a product undergoes cost reduction even when it is already on the production stage. The cost minimisation can include strategies in effective waste management, continuous product improvement of better deals in the acquisition of raw materials
TQM – continually improving quality of products and processes (everyone involved)
Goal congruence – goals aligned with companies
Product Life Cycle: Intro, Growth, Maturity, Decline
Market skimming – Producer sets high price for a new end product that is uniquely different to obtain max revenue before substitutes appear.
Performance evaluation of an entity:
ROA: EAT(OI)/total A. For each division
Company-wide ROI: Proportion of companies BV of ending (or Avg.assets) * their Divisional ROA = proportion of company ROA. This method is commonly used (well recognised) doesn’t account for cost of capital.
Residual income (RI): Residual income = income((required rate of return)*investment(avg.?) This method is conceptually better (takes into consideration WACC) invest in + RI projects. It is less well recognised.
Customer profitability analysis:
It does highlight customer profitability. Dropping customers is the last resort. (it is only a current picture now, could change next year). People could only be buying one now as they are new, being cautious? They might grow- think long term. Maybe try and change their behaviour (special orders, discounts, bulk buys) spend more on gaining than retaining. These customers will be helping to cover FC, so if dropped, FC redistributed over more profitable customers.
Absorption and Direct costing:
Absorption: FMOH inventoriable, added to COGS on per unit basis.
Income Statement: Sales-COGS=GM-period costs=AC income
Direct: MOH is a lump sum at