Question

Critical Thinking Assignment Answer the following questions about the "breakeven analysis and how it relates to Pricing (Ch. 13) strategy. How does a breakeven analysis help marketers determine the best price for their products? What other factors should companies consider? Why?

Answer 1

Pricing strategy depends on many factors but the most important is the pricing should be based on costs of material, cost of production, operating and marketing expenses, reasonable profit margin, etc. The pricing should bring the value to the company. Therefore it is important for marketers to relate the pricing with breakeven analysis. In the break-even analysis, they analyze the point where the revenue and cost of the company is equal and company is not making any profit at this point. It is an important concept to understand as it relates to the ability of the whole company for its long term sustainability. It is important factor in planning for infrastructure capacity and selecting a process which is more efficient in performance so that company can service in better way.

Breakeven selling price can be calculated in following manner -

Breakeven selling price = (Total fixed cost/ Total production) + Variable cost per unit

The best price of the product could be breakeven selling price plus reasonable profit margin if it is not feasible then company should think about a better process where it can produce cheaper or it can increase its sale to minimize per unit fixed cost.