Pricing

Capital asset pricing model According to Ross, Westerfield and Jordan (2008) capital asset pricing model is the equation of the security market line showing the relationship between expected return and beta. It is use to calculate the rate of return for risky asset. CAPM state that expected return of a security or a portfolio equals the rate on a risk free security plus a risk premium. Formula for CAPM E(Ri)=Rf + [{E(Rm) - Rf}] βi Where, E(Ri)= return required on financial asset I, Rf= risk…

Merton 's (1973) intertemporal capital asset pricing model (ICAPM) was developed to capture this multi-period aspect of financial market equilibrium. We still don 't know exactly how many factors there are, but the ICAPM at least gives us some guidance. Consumption-Oriented Capital Asset Pricing Model The consumption-based model of Breeden (1979) provides a logical extension of the previous work in asset pricing. Based on this "diminishing marginal utility of consumption," securities…

Markowitz (1952), risk can be eliminated through diversification by spreading the wealth across the assets. In his work, Markowitz (1959) implemented the theory of mean-variance of market portfolio which provided the initial foundation for capital asset pricing model. His model was a static model which assumed that investors tend to invest in a portfolio at time t-1, and gave stochastic return in the period t. One of the main assumptions in Markowitz’s efficient-set algorithm is that any…

Everyday approximately two million people fly in the United States. This huge industry helps drive $1.5 trillion dollars annually and supplies the United States with more than 11 million jobs (Partnering in Safety & Security). Even with this huge amount of revenue for the industry, many airlines struggle with profitability. There are multiple reasons that airlines struggle with profitability. According to the Harvard Business Review, the biggest reasons that airlines struggle with profitability…

Price is defined as the monetary value of a product or a service. Every organization’s goal is profit maximization so in pricing various factors are considered to ensure the goal is achieved. Market demand is one factor, high demand for a product calls for increase in its price while low demand for a product will require reduction in the price. Increase in production is one indicator of high demand while decrease low demand. Another factor is profit which is the difference between amount earned…

the most severe weather conditions. The North Face uses value-added pricing as the brand puts a lot of effort to differentiate their products from their competitors (Pearson Learning Solution, 2014). Their constant work on innovation and development of new technologies to make their products better than any others lets The North Face put a higher price on their products. The strong brand image plays a big role in product pricing as well. It allows the brand to use skimming strategy. Those…

The Four P 's of Marketing Your Fleet Key purpose of the article Pricing is one of the four major P’s of the marketing mix. The article suggests that when the other three P’s of promotion, place and product are equal, then pricing becomes a major and influential factor in the success of an organization and the purchase decisions of customers. Identify two pricing concepts that you learned from reading this article. The article highlights the importance of coming up with an appropriate price…

Introduction When it comes to varies pricing strategies, a company must understand how competitive the marketplace can be and the demands of the customer. As the customer, you want to make sure you are getting the best deals out of your money while buying a quality product. As a seller, you want to make sure the company financial goals are set to achieve great revenue. A pricing strategy must be used to ensure the customer’s perceived value and the company’s revenue target are obtained. As a…

Dropping a cent of the price of products so they end in a 9 makes it appear to the customer the products have greater value and achieves greater sales for Carmex. Carmex uses the strategy of competition-based pricing. Specifically, Carmex employs the strategy of above-, at-, or below-market pricing. Carmex’s regular…

Costing and pricing methods reviewed Cost-orientated pricing Many small businesses determine their basic price based on their costs. The idea is to set your price high enough to cover your costs and still make a profit (Van der Walt et al., 1995). Cost-plus pricing Many small businesses use this method. Here you determine the cost of the product and then add a set percentage to the cost for the profit margin. This method is popular and easy to use. Assume you are the manufacturer of steel…