SU 9: Decision Analysis & Risk Mgmt Flashcards
Price Elasticity of Demand
Percentage change in quantity demanded/Percentage change in price
Demand Elasticity Coefficient (>1)
Demand is in a relatively elastic range. A price decrease will cause an increase in total revenue
Demand Elasticity Coefficient (=1)
Demand has unitary elasticity
Demand Elasticity Coefficient (<1)
Demand is in a relatively inelastic range. A price increase will result in little or no decline in the amount demanded
Demand Elasticity Coefficient (Infinite)
Demand is perfectly elastic
Demand Elasticity Coefficient (=0)
Demand is perfectly inelastic
Peak-Load Pricing
Prices vary directly with capacity usage (i.e. Public utilities)
Cartel
A collusive oligopoly. Its effects are similar to those of a monopoly. Each firm will restrict output, charge a higher price, and earn maximum profit.
Competition-Based Pricing
Going-rate or Sealed-bid pricing
Price Skimming
The practice of setting an introductory price relatively high to attract buyers who are not concerned about price and to recover R&D costs
Penetration Pricing
The practice of setting an introductory price relatively low to gain deep market penetration quickly
Discriminatory Pricing
Adjusts for differences among customers, the forms of a product or locations
Value Pricing
Entails redesigning products to improve quality without raising prices or offering the same quality at lower prices
Product-Line Pricing
Sets price steps among the products in the line based on costs, consumer perceptions, and competitor’s prices
Optional-Product Pricing
Requires the firm to choose which products to offer as accessories and which as standard features to a main product
Captive-Product Pricing
Involves products that must be used with a main product (i.e. razor blades with a razor)
By-Product Pricing
Usually sets prices at any amount in excess of storing and delivering by-products
Product-Bundle Pricing
Entails selling combinations of products at a price lower than the combined prices of the individual items
Cost-Based Pricing
Begins with a cost determination followed by setting a price that will recover the value chain costs and provide the desired return on investment
Value-added Costs
Costs of activities that cannot be eliminated without reducing the quality, responsiveness, or quantity of the output required by a customer
Locked-in Costs
Will result in use of resources in the future as a result of past decisions
Target Pricing
The expected market price for a product or service, given the company’s knowledge of its consumers’ perceptions of value and competitors’ responeses
Market-Based Pricing
Involves basing prices on the product’s perceived value and competitor’s actions rather than on the seller’s cost
Promotional Pricing
Temporarily reduces prices below list or even cost to stimulate sales
Hazard Risks
Risks that are insurable. (i.e. - natural disasters, the incapacity or death of senior officers, sabotage, and terrorism).
Operational Risks
The risks related to the enterprise’s ongoing, everyday operations
Financial Risks
Encompasses interest-rate risk, exchange-rate risk, commodity risk, credit risk, liquidity risk, and market risk
Strategic Risks
Global economic risk, political risk, and regulatory risk
Risk Avoidance
Brining to an end the activity from which the risk arises
Risk Retention
The acceptance of the risk of an activity by the organization (Self insurance)
Risk Reduction
The act of lowering the level of risk associated with an activity
Risk Sharing
The offloading of some loss potential to another party
Risk Exploitation
The deliberate courting of risk in order to pursue a high return on investment
Residual Risk
The risk of an activity remaining after the effects of any avoidance, sharing, or mitigation strategies.
Inherent Risk
The risk of an activity that arises from the activity itself.
Risk Management Process
1) Identify risks
2) Assess risks
3) Prioritize risks
4) Formulate risk responses
5) Monitor risk responses
Risk Appetite
The degree of willingness of upper management to accept risk is termed the organization’s risk appetite
Uniform delivered pricing
The company charges the same price, inclusive of shipping costs, to all customers regardless of their location
