Unlike traditional cost-reimbursement contracts, which protect providers of services by covering their costs regardless of outcomes, the new performance contracts shift the risk to providers, which only get paid for successfully completed assignments. The tougher spirit in the new approach gives for-profits to assure governments that they can cover the risk if they fail to deliver on contracts. The non-profits do not have such deep pockets. Many non-profits believe that their mission is serving a local community and they do not want to expand nationally. Expansion comes naturally to for-profits. They are ready to launch services on a wider scale and are willing to establish offices and hire people from scratch to be able to work on a bigger scale.

Financial Information deals with collection, recording, and evaluation of financial data. Business enterprise requires systematic maintenance of their records that help for preparing the financial statements like profit and loss accounts and balance sheets. Accounting is considered as an information system because it has inputs of financial data, processing by evaluation and outputs through financial reports. The importance of financial information system for the different users in the managerial area can be depicted as cost planning and cost control of operations profitability of the firm strategic and tactical decisions. Profitability of the firm soundness of the investment growth prospects of the firm. liquidity of the firm profitability and financial soundness. managing the industrial economy of the country.

In case of funds are required for some directly productive purposes the company can afford to raise the funds by issue of debentures. on the other hand, if the funds are required for non-productive purposes, providing more welfare facilities to the employees the company should raise the funds by issue of equity shares. Times of Boom investors generally want to have absolute safety. In such cases, it will be appropriate to raise funds by issue of debentures. At other periods, people may be interested in earnings high speculative incomes, at such times, it will be appropriate to raise funds by issue of equity shares.

Commercial success follows companies which can create and retain customers by providing better value than competitors. The choice of which customer groups to serve and how value should be created needs to be ascertained. This involves choices regarding technology, competitive strategies and creation of competitive advantages. As the environment changes, businesses must adapt to maintain strategic fit between their capabilities and the marketplace. The process by which businesses analyze the environment, decide upon a course of action and implement those decisions is called marketing planning. The role of the marketing plan is to ensure that the marketing mix for the product matches changing customer needs, as well as to seek opportunities to use the company’s strengths to market other products in new markets. Many companies market a range of products in many markets.

Core competencies: The distinctive nature of these skills and resources sum to a company’s core competencies. Value chain is a useful method for locating superior skills and resources. All firms consist of a set of activities that are conducted to design, manufacture, market, distribute and service its products. The value chain categorizes these into primary and support activities. This enables the sources of costs and differentiation to be understood and located. Primary activities include in-bound physical distribution, operational, outbound physical distribution, marketing and services. Support activities are found within all these primary functions and consist of purchasing, technology, human resource management and the firm’s infrastructure. They are not defined within a given primary activity because they can be found in all of them. By examining each value creating activity, the management can look for skills and resources that may form the basis for also be examined.

Capacity utilization describe how costs of some activities are affected by the way other activities are performed. For instance, improving quality assurance activities can reduce after sales service costs. Activities of suppliers and distributors are also linked to the activities of a firm and affect costs of a firm. Sharing costs with other business units is a potential cost driver. Sharing the costs of R&D, transportation, marketing and purchasing lowers costs. Both integration and de-integration can affect costs. Owning the means of physical distribution rather than using outside contracts could lower costs. Ownership may allow a producer to avoid suppliers or customers with sizeable bargaining power. Ownership also increases control, which may allow greater efficiency of distribution.

A company’s price level sends signals about the quality of its products to the customer. A customer always compares the company’s prices with those of its competitors. The competitors also keep an eye on the price levels of a company. Very low prices may invite price wars, while high prices without sufficient additional features or quality invite bad publicity.

Price-Quality Relationship and Product Line Pricing:

Customers use price as an indicator of quality particularly for products where objective measurement of quality is not possible, such as drinks and perfumes. Price strongly influences quality perceptions of such products. If a product is priced higher, the instinctive judgment of the customer is that the quality of the product must be higher, unless he can objectively justify otherwise. Some companies prefer to extend their product lines rather than reduce price of existing brands in face of price competition. They launch cut-price fighter brands to compete with low price rivals. This has an advantage of maintaining image and profit margins of existing brands. By producing a range of brands at different price points, companies can cover varying price sensitivities of customers and encourage them to trade up to more expensive higher margin brands.

Explicability and Competition:

The company should be able to justify the price it is charging especially if it is on the higher side. Consumer product companies have to send cues to the customers about the high quality and the superiority of the product. A superior finish, fine aesthetics or superior packaging can give positive cues to the customers when they cannot objectively measure the quality of the offering. A company should be able to anticipate reactions of competitors to its pricing policies and moves. Competitors can negate the advantages that a company might be hoping to make with its pricing policies. A company reduces its price to gain market share. One or more competitors can decide to match the cut , thwarting the ambitions of the company to garner market share. But all competitors area not same and their approaches and reactions to pricing moves of the company are different.

Companies can reduce price sensitivity of customers and have more scope for maneuvering their pricing strategies. Price sensitivity of customers will determine the latitude that a company will have in increasing its price. A company should know the price sensitivity of its customers and the factors affecting it. In certain situations a company may be able to explore opportunities to reduce price sensitivity of its customers if it develops a keen understanding of his motivations in making the purchase, the purpose for which he uses the product and the very nature of the product. A customer is price sensitive if he is bearing the cost as opposed to a third party. The customer is also fewer prices sensitive if he does not have to make the payments upfront. Allowing customers to pay later may make the customer less fixated on the price. Arranging a loan for the customer will allay the concern of high price.

A customer is also price sensitive if the cost of the item represents a substantial percentage of a customer’s total expenditure. The choice of the target market becomes very important. In generic terms, a wealthier segment would be fewer prices sensitive and should be targeted. If the buyer is not the end user and he sells his end product in a competitive market, price pressure from further down a distribution channel ripples back up through the chain. For instance, one steel producer was able to obtain good margins by selling a component to buyers who then produced specialty items for end users. Buyers of the specialty item were fewer prices sensitive. The customer is more likely to be price sensitive if he is able to judge quality without using price as an indicator. A customer’s price sensitivity will be more also if the product is one for which it is easy to make comparisons. For instance, it is easier to compare cameras than it is to compare computers. A customer will be more prices sensitive if there is limited difference between the performances of products in the category.

Prices should be in line with marketing strategy. Price should be linked to positioning strategic objectives, promotions, distribution and product benefits. Pricing decision is dependent upon other earlier decisions in the marketing planning process.

Positioning Strategy:

For a new product there is an array of potential target markets. For calculators they include engineers and scientists, bankers and accountants and general public. Choice of target market would have an impact on price that could be charged. If engineers were targeted, price could be higher. For accountants, price would be lower and for the general public, it would be still lower.

Rapid Skimming Strategy:

The high price provides high margins and heavy promotion causes high level of product awareness and knowledge. A slow skimming strategy combines high price with low levels of promotional expenditure. High price means big profit margins but high level of promotion is believed to be unnecessary, perhaps because word of mouth is more important and product is already will known, or because heavy promotion is thought to be incompatible with the product image as with cult products. Slow penetration strategy combines a low price with low promotional expenditure. Own label brands use this strategy. Promotion is not necessary to gain distribution and low promotional expenditure helps to maintain high profit margins.

It is important to understand the characteristics of market segments that can bear high prices. The segment should place a high value on the product which means that its differential advantage is substantial. Calculators provide high functional value to engineers and they will be willing to pay high prices for them. Perfumes and clothes provide psychological value and brand image is crucial for such products to be acceptable. High prices go well with premium brand image. High prices are also more likely to be viable where consumers have a high ability to pay. Low price is used when it is the only feasible alternative. Product may have no differential advantage, customers are not rich and pay for themselves, have little pressure to buy, and have many suppliers to choose from.