UNIT 4 DISCUSSION BOARD - Essay Example

Pricing Decisions Pricing is a matter of management.  Oftentimes, it is the straightest expression of business strategy, as it eluci s theservice or product proposal, the objective market and selected competitive arrangement. Pricing is an important function profit.  It is when pricing is incoherent or uncontrolled that profit suffers. Indeed, Professor E. Raymond Corey of Harvard Business School was right on mark when he illustriously wrote in 1962 that "Pricing is the moment of truth - all of marketing comes to focus in the pricing decision.

"  (http://www.pricinghelp.co.uk/index2.html). This is why managers should base their pricing decision on solid ground. Major factors that should be considered are the market (i.e. customer demand), cost, actions of competitors, and political, legal, and image related issues. The process of determining customer demand is critically essential and continuous. It is even necessary to conduct market research. Though internal and production aspects such as quality are vital, managers must make certain that the product is not priced out of the market.

The function of costs is based almost completely on market forces. Producers must meet the market by charging prices below the market price. Generally, both market forces and cost factors greatly affects prices. If a manager wants to effectively decide on pricing, he or she must keep an eye on the market. However, it should also be noted that costs must be covered in the long run. (http://www.canberra.edu.au/uc/lectures/mantech/accounting/sem981/unit4827/Lecture_Week_3_-_Pricing.txt).The pricing decisions that a manager makes should achieve the firm’s financial goals (i.e. profitability); meet up with the realities of the marketplace (by evaluating whether the consumers will buy at that price?); and keep up with the positioning of a product and with the other variables in the marketing mix.

(http://en.wikipedia.org/wiki/Pricing#A_well_chosen_price_should_do_three_things:)However, legal issues should still be considered in pursuing these ends. Legislative restrictions are necessary because they prevent the possible setbacks or damages that individual firms’ pricing decisions could cost other firms, the consumers, or the economy in the aggregate. The law influences pricing decisions to entail responsibility. It creates awareness on the part of the firm to evaluate the consequences of their pricing decisions in a greater perspective.

Moreover, the law influences pricing decisions in the sense that given price restrictions, firms adjust prices to reach a new cost-minimizing, profit-maximizing level. This can be observed in the adjustments that firms make when floor price policy or price ceiling policies are implemented. DCF methods for evaluating investments in research and development In finance, the DCF (discounted cash flow) defines a method to value a project or an entire firm. The DCF methods determine the present value of future cash flows by discounting them using the appropriate cost of capital, which is necessary because of opportunity cost and risk through time.

(http://en.wikipedia.org/wiki/Discounted_cash_flow).The DCF method is extensively used in investment finance, corporate financial management, and real estate development. In the field of research and development however, a manager who was asked to justify investment in a major research project based on its expected net present value stated that it is impossible to use DCF methods to evaluate investments in this field. I agree that it seems unworkable for now, but I do not think it is entirely impossible since recent legislations already require firms to report on program results so that ways to measure the impacts of research are now under progress.

(http://en.wikipedia.org/wiki/Discounted_cash_flow). Currently, the problem with the evaluation of investment in research and development using DCF is that the size and timing of all of the incremental cash flows from the project is required. However, this is not workable in R&D. The primary indicator of research investment, that is the amount of money spent in R&D, is useful only as an input measure of how much research is being performed. There is no main indicator of R&D results. Future cash flows cannot be discounted on present terms.

R&D firms usually collect data on different output indicators such as patents granted and return on investment, but in most cases make limited use of them in their investment decisions. Instead, they stressed that R&D contributes directly to the bottom line. (http:66.102.7.104/search?q=cache:r4qTs1ffCgYJ:www.gao.gov/cgi-bin/getrpt%3FT-RCED-97-130+evaluating+investments+in+research+and+development&hl=en&ct=clnk&cd=6)Therefore, there are no cost savings to measure. Uncertainty is also an ever towering threat since the products that might come out of R&D activities cannot be ascertained.

Works CitedNagle, Thomas T. The Strategy and Tactics of Pricing. 3rd edition. 2002 Pearson Education, Inc. June 28,2006. http://ecommerce.ama.org/bbr/pdf/StrategyandTactics.pdfThe Price Consultancy website. June 28, 2006. http://www.pricinghelp.co.uk/index2.htmlUniversity of Canberra Australia website. June 28, 2006. http://www.canberra.edu.au/uc/lectures/mantech/accounting/sem981/unit4827/Lecture_Week_3_-_Pricing.txtUS General Accounting Office website. June 29, 2006. http:66.102.7.104/search?

q=cache:r4qTs1ffCgYJ:www.gao.gov/cgi-bin/getrpt%3FT-RCED-97-130+evaluating+investments+in+research+and+development&hl=en&ct=clnk&cd=6Wikipedia. June 28, 2006. http://en.wikipedia.org/wiki/Pricing#A_well_chosen_price_should_do_three_things:Wikipedia. June 28, 2006. http://en.wikipedia.org/wiki/Discounted_cash_flow