COSTS Flashcards
What are the costs during the DESIGN & DEVELOPMENT of a new product?
- Employing of a development team to make key decisions
- Market research
- Information technology
- Testing
- Trials
- Packaging
What are the costs of MARKET RESEARCH?
- Methods used to find gap in the market = costly & time consuming
- Expertly trained staff are needed to analyse the market research = costly
- Hiring QUANTITATIVE RESEARCH COMPANIES = expensive!
What are the costs of INFORMATION TECHNOLOGY?
- COMPUTER AIDED DESIGN is used for graphics/ design/ labelling
- Technology is needed for HACPP
- Email for communication
What are the costs for TESTING?
- PROTOYPES = costly
- PRODUCT TESTING = costly
- Trained organoleptic testers are used = costly
What are the costs of TRIALS?
- PILOT TRIALS = costly
- Making samples for consumers contributes to cost
- Have to pay to have the results of trials analysed too
What are the costs of PACKAGING?
- HIGH QUALITY = expensive
- Cannot be compromised
- Consumers link quality of packaging to quality of product
What are the costs of RAW MATERIALS & LABOUR?
- Buyers seek out best possible materials for max profit
- Bulk purchases means prices can often be negotiated
- Imported ingredients = expensive
- Training of staff = expensive
- Shift work = labour costs increase
- CONTINUOUS FLOW PRODUCTION ( mass production ) is automated as its 24/7 but staff are needed to monitor this
What are the FIXED costs of FACTORY & MACHINES?
- Maintenance of machines
- Staff salaries to man the machines 24/7
- Fuel to run machines
- Insurance
These become less significant throughout production
What are the VARIABLE costs of FACTORY & MACHINES?
AFFECTED BY OUTPUT - Cost of ingredients - packaging materials - running costs of machines These become more significant throughout production
What other costs are there of FACTORY & MACHINES?
- Manufacturing is controlled by HACCP = computers = expensive
- High risk products need stringent safety checks = increase costs
- Product safety team is employed to manage APPROVAL/ SURVEILLANCE/ EMERGENCY issues
- Large scale production will be controlled by CAM = expensive
What is COMPUTER AIDED MANUFACTURING?
The use of computers to assist the process. To monitor: - Temperature - Weight - Thickness - Colour
- To reduce human error
- To increase production speed
- To give retailers reliability
What are the costs of DISTRIBUTION?
All distribution = costly
- Refrigerated storage requires specialist vehicles = expensive
- DIESEL & AVIATION FUEL = expensive
What are the costs of MARKETING?
- Legal advice is required = costly
- Staff employed to conduct personal selling = expensive to maintain
- MODIFIED ATMOSPHERE PACKAGING = expensive
What are the costs of ADVERTISING?
- The UK spends £600 million a year
- In-store = costly
- TV & INTERNET = costly
- Free publicity if a celebrity uses it
- Merchandising a product to influence the customer to make a purchase (displays)
What are the costs of PRICING A PRODUCT?
- Easy if the product has sales history
- Maximise profit
- Encourage sales
- Produce a return in sales
What are the INFLUENCES on price?
- Cost of producing & manufacturing the product
- Competative products prices will be considered
- Strong brand identity manufacturers can control pricing more easily
- Market trends
- Demand for a product
- Must be prices to meet consumer expectation ( TOO LOW = fear of bad quality )
What are the different PRICING STRATEGIES?
- COST based pricing
- MARKET based pricing
- COMPETITION based pricing
What is COST based pricing?
Based on production costs by calculating the average manufacturing cost & adding fixed rate for profit
- Market requirements are not a priority
- If production costs increase then so must the PRODUCT PRICING
What is MARKET based pricing?
Based on analysis of the conditions of the market that the product is aimed at
- PENETRATION PRICING = Start at low price to get a foot in the market and encourage consumers to try the product
- PYSCOLOGICAL PRICING = Significant price points Eg. £2.99 is better than £3.00
What is COMPETITION based pricing?
Charging same as competitors or market leader to avoid a price war
