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VILNIUS GEDIMINAS TECHNICAL UNIVERSITY
FACULTY OF BUSINESS MANAGEMENT
DEPARTMENT OF FINANCE ENGINEERING
COURSE PROJECT
Organizing the pricing strategy of CJSC Ingman ledai
Student: Laurynas Kolka, Mvfu-10/1
Academic supervisor: Indr Lapinskait
Vilnius, 2013
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CONTENTCONTENT ........................................................................................................................................... 2
1. INTRODUCTION ........................................................................................................................ 3
2. THEORETICAL ASPECTS OF PRICING ................................................................................. 4
1.1 Price concept ..................................................................................................................... 4
1.2 Pricing methods ................................................................................................................ 5
1.3 Factors that influence pricing decisions ............................................................................ 7
1.4 Price policy and its objectives ........................................................................................... 9
1.5 Price strategy and its objectives ..................................................................................... 11
1.6 Pricing in different types of market ................................................................................ 12
1.7 System of discounts ........................................................................................................ 14
2. PRACTICAL PART ...................................................................................................................... 15
2.1 Company profile and brief description ........................................................................... 15
1.1.1. Company's legal form of organization ...................................................................... 16
1.1.2. Company commercial - economic activity description ............................................. 16
1.1.3. Product market analysis............................................................................................ 17
2.1 Industry and market definition ....................................................................................... 17
3. VIVA ice cream price determination of 100 pcs ........................................................................ 18
3.1 Companies pricing methods ........................................................................................... 18
3.2 VIVA vanilla ice cream EXW price calculation ................................................................. 18
3.3 Product sales to the consumer pricing ........................................................................... 20
3.4 Break-even pricing method ............................................................................................. 21
3.5 Optimal price level determination .................................................................................. 23
3.6 Existing enterprise pricing strategy for discounts ........................................................... 32
4. CONCLUSION .......................................................................................................................... 33
5. REFERENCES ........................................................................................................................... 34
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1. INTRODUCTION
Pricing problems in the economy have always been quite complicated and insufficiently
researched, and the price - a very important social and economic relations element. Pricingcontrol all the production and marketing process. In addition, the specific price at a given
moment depends on the level of the means of production, market development, and its
segmentation from intermediate and final consumption, on the number and type of agents active
in the market.
Thus, the pricing is the price-forming as well as psychological, social, political, market and
other factors synthesis. This production of operating a combination of setting the price level
dynamics and relationships, selecting relevant pricing strategy. Pricing - a complicated process,
so it is very important to make the most of exploring it. So in this work i will explore pricing in
the individual company.
This paper work aim: to analyze the pricing system of CJSC Ingman ledai.
The goals of this work :
Access to the pricing terms;
Define the price and its methods;
To review pricing policy, strategy and discount scheme;
Identify pricing in different market types;
Describe the selected company, the market in which it operates;
Identify the selected product pricing for the enterprise;
Calculate the selected product price in four methods;
Describe the company's marketing strategy;
Working methods :
Pricing theoretical analysis of the literature;
Theory and practice compliance;
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Pricing systems in the enterprise analysis.
2. THEORETICAL ASPECTS OF PRICING1.1 Price concept
In market economy, price is one of the most important parameters that directly affect the
company's financial condition. Therefore, evaluating the price, the manufacturers seek to meet
the requirements of manufacturers and consumers. The quickest and most effective way to get
the maximum profit company - the right pricing. Properly the price can increase profits faster
than that made by growing sales.
Price has quite a number of definitions. It is not only the amount of money you pay. According
to the marketing, the price is the value that the user pays for exchange for his needs. Price - This
is the monetary value of the expression. Value for money - an important indicator of the
company's activities and the economic means of the company objectives. The most common can
be said that the literature price is treated as a key element of the company's policy, which
regulates the company's sales volume.
In the market economy prices perform the following functions:
accounting and control of the aggregation;
payment and income generation;
resource allocation;
different economic systems contractors promotion;
supply and demand adjustment.[1]
Price - variable factor directly acting revenue. Therefore, it is often viewed with caution. In
order to meet all of its functions, the price of the company has also adjusted to the demand for
the goods to be assessed and increased satisfactory.
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1.2 Pricing methods
The company, considered the demand, costs and competitors' prices and selects one of the
possible methods of pricing. The price set by several methods. The literature distinguishesseveral main methods of pricing::
The method focuses on the cost:
o The cost plus mark-up - calculating the costs measured variables and fixed cost of
goods. The mark-up is understood as the profit margin per unit of product. This
pricing method is rather popular. It is favorable to the manufacturer. Manufacturer
for each product produced and sold gets the desired profit. On the other hand, the
company ignored the demand. It may happen that the price of goods not in
demand. Targeting only the cost means that the price is not used as an active
commercial instrument. Such pricing policy reduces the company's freedom of
action in the market. Company may be out of the market because of the one-sided
approach will not lead pricing options to determine the most favorable prices for
the company. Therefore, setting the prices need to rely on factors, including the
demand.
o Finding the break-even point
From this graph can be performed loss analysis. If the company will produce and sell goods
in a quantity less than Q1, it will suffer a loss. Point A is called a turning point. This means that
the company cover the overall cost of production income, it has to sell at least Q1 quantity of
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goods. In order to obtain a certain amount of the set p profits, the company has a number of
products sold in Q2.
This chart does not show the goods demand elasticity, ie show sales volume dependence of
the sales price level. For this analysis would be more accurate, the company must be at least
approximately to examine the various price levels affect sales volume and the basis for
establishing the price.
o Based on variable costs - in this case, fixed costs, we can say quite ignored in
determining the price and the cost basis of collected variables: the price is
determined such that the product exceeds the variable costs or, in other words, the
variable costs added bonus of a certain size.
Fixed costs are generally not be allocated between the goods produced by the company.
They are charged to the profit from the sale of all the company's products. If you have received a
profit does not cover the fixed costs, the company incurred a loss.
Changing commodity prices and sales volumes, it is possible to calculate the different profit
values. This allows you to decide how to determine the purchase price depending on demand. [7]
Method focused on demand:
Organization in determining the purchase price method is not based on the cost of
production, and the perceived value of the product by the consumer. Price level is determined by
the basis of the consumer receives, perceives a product for the value it provides to its
imagination. User rating depends on the subjective psychological satisfaction through the
consumption goods. These estimates are reflected in the demand of consumers. So when the
price based on the existing level of demand.
In determining the cost method, your product compares to similar competitors' products. In
view of the comparable product quality, service, design differences, the company set a higher or
lower price than the competitors. In this case the company changes its product price depending
on demand. Product demand increases, the company price increases and demand reduction -
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reduces. Costs are only limiting factor indicating whether the firm will planuojamj profits when
it identifies the level of demand for money. [7]
The method focused on the competition:
The method to set prices, the company mostly relies on its competitors. The company prices
its product set at a level which identified counterparts for their products by its competitors, or
your company products price is set a little higher or lower than competitors.
In determining the price of their products, the company focuses on the current market levels.
It does not change their prices as competitors does not change the price of their products,
changes its price, on the basis of competitors' price changes. The company does so regardless of
whether the changes in their demand for goods, or changing product cost. It simply mimics the
actions of competitors, without attempting to maintain a constant relationship between the price
its cost.[7]
1.3 Factors that influence pricing decisions
All of the foregoing techniques aim - to narrow price range, which will determine the final
price. But before the company must evaluate additional factors.
In determining the price takes into account the psychological factors. Assessing the price the
user unknowingly pays more attention to the first digits of prices. At least it seems important for
the fractional part of the price. Therefore, a much more common price "8.98", "49.95" instead of
"10" and "50." The first two-time prices for consumers unknowingly significantly reduced, so the
goods sold at prices much more. Unrounded prices for consumers more enjoyable because,
together with the product he gets return. In addition, the rounded price to the consumer can seem
like a discount.
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In addition, users decide on the price of the product quality. Perfume bottle can be flavored
with a value of 30 . However, some buyers paid for by $ 100 because the price reflects
something special.
In determining the price to take into account the distribution channel participants. Producers
to sell goods to intermediaries lot depends on what concessions it can offer. Most often made of
these types of discounts: functional, quantitative, payment and seasonal.
Functional discounts agent compensates for the distribution and promotion costs.
Quantitative basis for the calculation of discounts - agent purchased items. These
concessions purpose - to encourage dealers to buy more products from the same company.
Payment discounts encourages for early payment of the company bill for goods delivered.
Seasonal discounts are made for goods bought in a certain season. If such goods are
manufactured or less evenly throughout the year, off-season the company sells these products to
intermediaries at a discount.
In determining the price we'll have to evaluate and competitors. Price - the easiest and most
likely be replaced by the element of the marketing mix. Therefore, it is easy to adapt to the
competitive situation. The price can be determined by alignment to the company's leadership, or
the average price level. Sometimes the price regulation justifies aggressive, that is to say directly
against competitors.
In some cases the discriminatory prices. This will be the case when a company sells goods at
different prices, even though they cost the same. Discriminatory prices can be several kinds of:
Price of a particular group of users. Different users for the same product or service pays a
different price. (Museums often applies a discount to students or the elderly).
Price depending on the product model. Different models of the same product, regardless of
the cost of goods, price has its variations.
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Price, depending on place. Different locations determined at varying prices, although the
cost of the same. (Ticket prices at the theater depends on what place in the hall the most
viewers.)
Price, depending on the time. Price varies depending on the season, month, week, day and
even hour of the day. (Utility price)
Some companies offer a variety of goods to accessories. In this case, the company
establishes additional commodity prices. For example, a car buyer may request electrically
operated windows, fog lights, control panel.
Price setting is influenced by state regulation. In different countries, it varies. However,
there are several typical regulatory trends. One of them - price fixing regulation. In most cases
prohibited by the horizontal lock - Agreements between competitors to maintain a certain price
level. In some cases, regulated and vertical lock - on the manufacturer's agent in the prices. It is
also forbidden to sell goods at a price lower than the cost of.
Even in the literature can be found in the following more general factors:
Outer:
o distribution channel participants;
o competitive environment;
o legal and economic factors.
Inner
o product strategy;
o marketing mix strategy;
o costs;
o and organizational factors (which makes the final decision?). [1;3]
1.4 Price policy and its objectives
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Price objectivesthis is the most general objectives that your company wants to achieve
prices of goods. [3]
Price policyThis is the leadership of the company pricing practices. It is based on the
main principles and rules which the company uses to get maximum profit and to ensure
competitiveness in the market place. [1]
The main purpose of the pricing policy can be:
Care to survive. The problem and purpose of the company arises when the market
justifies many manufacturers, high competition, or frequently changing needs of
consumers. To provide your company work and sell goods, manufacturers are forced to
set low prices, hoping buyers benevolent response. The price can be reduced as long as it
also covers the costs of, or until the cover variables and at least part of the fixed costs.
To maximize profit. The company that produces luxury goods seek to maximize profits.
Taking into account the different price levels, it assesses the demand and the cost and the
price, which guarantees maximum profit. This objective may choose a monopoly position
in the market an undertaking.
Increase sales. The company, which aims to increase sales by striving to sell goods or
sell them for more than its competitors low prices. The target chosen orientation of
production company.
Maintain competition. If your business objectives and competitive, that does not mean
that the price will be a key competitive tool. In most cases the company is not worth
reduce price while "killing" competitors, as it reduces its own profits and allows them to
compete in other ways (for example, modification of the product, stepping up advertising,
etc.). Introducing into the market a new product, the price is often compatible with other
companies of the quality goods at prices like "the face" competition.
To take leadership of quality. The company can ask ourselves the objective that its
products are of the highest quality on the market. Usually this is associated with a high
price, since one has to bear all the costs of studies. [4;5]
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1.5 Price strategy and its objectives
Companies seeking to profitably sell their products and compete in the market is not enough
to know only the pricing methods. It has to be clear its objectives, assess the market situation andthe factors that affect pricing. All things considered combined into a single circuit, planned
pricing strategy. In addition, the pricing strategy must be linked to other elements of the
marketing mix - product, distribution and promotion. Pricing strategy must be closely related to
the marketing strategy. Marketing strategy in each case provides the potential pricing strategy.
Pricing strategy - a way in which a firm seeks to achieve its policy objectives underlying
price.
Substantially all of the pricing strategy is divided into two groups: the application of new and
existing products in the market. New products are two pricing options:
apply "skimming" strategy - the company in order to get maximum profit, sets higher
commodity prices and profits as skim layer by layer. This strategy is suitable when sold
new products, highly satisfying consumer needs. In addition, users must be willing to buy
a product, that the high price. Market share should include segments of customers are not
very price sensitive. It remains to be that competitors would not be able to easily
penetrate the market and reduce costs. The company, nugriebusi cream, start to lower the
price, and at the same time expand their customer base.
to apply penetration strategy - some companies rather than established high prices
in order to gain a small but profitable market segments, sets new low commodity prices
and rapidly trying to penetrate the market and attract more customers, gain a significant
market share. Some conditions are favorable for low prices. That low prices encourage
expansion of the market, consumers need to be sensitive to prices. Production and cost of
sales to decline with increasing output.[4]
Using a penetration strategy, the company have a problem: they fail to take significant
market share or the market as a whole appears to be less than expected. However, in this case,
the company has the potential to change the price: it is to reduce or increase it. By reducing the
price of each item falling profits. In this case, a company wanting to reduce absolute income can
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increase sales. Users of the increased price of the product reacts negatively. Decided to keep the
price of goods has increased sales of other marketing tools: advertising, through private sales,
etc..
In the first case, to more innovative products, while the second strategy is more acceptable
to the strong competition.Existing market prices options strategies:
Price and quality strategy:
In determining the price has to be aware of the price and the quality is ranked product.
The competition-oriented strategy:
Some firms set their prices for goods less than the nearest competitor. They seem to lower
the price to attract more consumers. However, what often happens is that the user of such goods
as something of competing analogies.
The company, through the competition-oriented pricing strategies should include all
potential competitors response. As a company has to respond to competitors' price changes?
First, it must respond to the following questions:
o Why competitor changed products price ?
o Has it been done in order to gain a bigger market share, or sell any excess, or to
adapt to changing prices?
o Does the competitor price change is temporary or permanent?
o
How did the company profits and market share, if it will not take any measures?
o
1.6 Pricing in different types of market
Pricing method and its regulatory options is highly dependent on the competitive situation.
In the current economy are intertwined wide range of market types, the basic literature defines
as: perfect competition, monopoly, oligopoly, monopolistic competition.
Each of these operating companies have different pricing:
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Perfectly competitive market is characterized by the fact that there are many producers and
consumers. There is also the absolute freedom of entry and exit. Are produced typical and
uniform quality products. Perfectly competitive market, firms and customers have detailed
information about prices, products, profits, and technology. For this reason, no market
participant can not influence the market price formation. In other words, the company is the pricebenefit. Therefore, for example, to use a pricing strategy as a 'low-cost' does not pay for the
entrance to the market is free. [1;3]
Monopolistic market all production is concentrated in the hands of a single manufacturer.
This market solutions are the individual producer prices in the market. This means that the
company is able to control a monopoly in their sales prices, changing levels of supply. Therefore,
a company a monopoly can only wish to apply what pricing strategy, but its output will be
purchased, as it is the only manufacturer of that product. Monopolistic market the company is
practically insurmountable for new businesses because there are barriers to entry.[1]
Oligopoly - a market in which all the products are identical or close substitutes for products
supplied by small firms, but at least some of them are high. Enterprise solutions can change the
output and influence market prices. Oligopolistic firms wishing to protect themselves from
potential competitors entering the market, creates a variety of obstacles. Company uses product
differentiation (produces several models of the same product for different groups of users, taking
into account the fact that new firms entering the market will produce close substitutes). The old
firm of advertising, it is the increased advertising costs. This makes the new plants will also
increase the cost of advertising, but as a new company producing a small volume, it is the large
increase in average overall costs. And it becomes a disadvantage because incumbents average
total costs are lower. As a barrier to the prevailing oligopolistic market, firms can use prices.
When you enter a new business, they can reduce the prices of products they hold such until the
new firm into bankruptcy. The most oligopolistic market dictates the price leader, and other
firms in order to survive in an oligopolistic market has to adapt to the prices and choose the
appropriate pricing strategy. [1;3]
Monopolistic competition in the market - a market in which many firms producing close
substitutes. This market is characterized by a sufficient number of producers who are not large,
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easy to overcome entry barriers. Monopolistic competition, firms compete not only on price but
also on quality of products, advertising, sales conditions. Therefore, many companies a lot of
attention to brand and product brand. Since products are differentiated, then a large number of
firms in the market, manufacturers can poorly affect your production cost. Therefore, companies
can use a variety of pricing strategies, as well as "cherry picking" and low prices, and the price -quality and others. Users will select those firms products that most meet their needs.[3]
1.7 System of discountsPrice discount system can be useful and flexible company's marketing policy. Discounts are
different. And its commercial nature, the discount can be of two types:
1. Target discount;
2.
Tactical discount.[4]
Target discounts are formed overhead expense. This type of discounts can be attributed to
firms that produce a product which is organized in its trade promotion, which sets out the trade in
goods trading firm. It saves your company manufacturer dealer funds on behalf of firms to
advertise. Therefore, under the economic substance of which is equivalent to the trade discount.
Tactical concessions combines economic resource - the profit. This type of discount is to
create additional incentives that buyers would decide to buy. There are awarded 6 main types of
tactical concessions:
1. Quantity discount.
2. Seasonal discount.
3. Discount for prompt payment.
4. New product sales promotion discount.
5. Discount for set of products.
6. Discounts to loyal customers.[1]
Quantity discount - the standard selling price reductions, which the buyer is guaranteed, if
the goods are bought more for the size of.
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Seasonal discount for goods with a strong demand fluctuations in individual seasons. These
discounts is to encourage customers to purchase goods until next season, a new beginning of the
season or the whole season. This is because, as seasonal discounts increases the active sales of
seasonal goods helps manufacturers reduce the seasonal fluctuations in capacity utilization.
Discount for prompt payment is applied when the buyer pays for the goods before the agreed
contract.
Discount for set of products - the standard price reduction, the purchaser is guaranteed, when
he buys a product with the company's other complementary goods. This product is based on the
fact that the price of each set is lower than buying these products individually, even within the
same firm.
Discount to loyal customers are given when they are long-term firm buys goods on a regular
basis. [1;4]
2. PRACTICAL PART
2.1 Company profile and brief description
In spring 1992, the Lithuanian company "Vega and the Finnish Ingman Foods Oy Mazeikiai
founded a joint Lithuanian and Finnish company CJSC Ingman Vega. Controlling stake - 80% of
the shares - owned Finnish Ingman Ice Cream Oy Ab, which brings together ice cream
production plants in Finland, Sweden and Lithuania. So CJSC Ingman ledai office is in
Mazeikiai.
2000 - 2001 was conducted in the reconstruction of the company. Since 2001, the company
has a HACCP quality control system, which gave the right to export manufactured products tothe European Union countries.
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2003 - 2004, was carried out in the reconstruction of the company. The majority of the
investment for new plant construction, process automation, product storage areas increase,
logistics center construction.
CJSC Ingman ledai since 2004 its reconstruction has become one of the most modern and
biggest ice cream and wafer cupsmanufacturer in the baltic countries, the production capacity
was - 20 million liters of ice cream per year. The company has expertise in manufacturing
products with private labels and was ready for various projects.
CJSC Ingman ice cream production is traded in the Baltic countries. Latvia and Estonia
trading is carried out through the Finnish Group companies SIA Ingman Saldjums and Ingman
Jtised AS.
Company sales branches in Vilnius, Kaunas and Palanga Maeikiai. The company also
trades in other frozen foods-vegetables, berries, potatoes, dumplings and so on. And is the only
brand 'D' Aucy (frozen vegetables and berries) in Lithuania.
CJSC Ingman Ice Cream is recognized Lithuania's ice cream market leader with over fifteen
years of successful business experience, bringing together a team of competent professionals
engaged in rigorous product quality control, separates great attention to new product
development and satisfying consumer needs.
1.1.1. Company's legal form of organization
The company concerned is a closed joint stock company, therefore the company is a limited
liability entity, due to the company's assets are separate from the assets of the shareholders.
Closed joint-stock company shares may not be distributed or sold to the public unless otherwise
provided by other laws.
1.1.2. Company commercial - economic activity description
The activity classification CJSC Ingman ledai is engaged in manufacturing of ice cream.
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The Company has implemented an investment policy helps to ensure product quality. Since
2001, the company has a HACCP quality control system. In 2005, the company has adopted and
annually updated to ISO 9001: 2000 and BRC Global Standard-FOOD quality management
system. UAB Ingman Ice Cream was the first meal. ice production in the Baltic countries,
corresponding to the BRC standard.
1.1.3. Product market analysis
CJSC Ingman ledai most of the ice cream exports - 35% - exported to Latvia, 29% - to
Finland - 22% in Estonia. Lithuania company offers its products to various stores, databases,shopping centers, cafes. The company also has its own stores that sold at lower prices than the
market price. My company strives to produce products that it requires demand and the output is
sold to realize it through various channels.
2.1 Industry and market definition
UAB Ingman ledai - the food industry, which depends on ice cream production branch.
The company operates oligopolistic market conditions. This means that all manufacturers of this
industry will react to other firms' price and output changes as a few large companies control the
majority of sales in the market. In order to successfully organize their activities in a profitable
way achieve the strategic objectives of the company to focus on the current situation of the
market, know your key competitors and their services, knowledge of the composition of the food
market.
Production of ice cream market:
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From the graph we can see that a total of five major competitors. CJSC Ingman ledai
sharp competition, occupies 30% market share in Lithuania. It is the 2008 leader in the
manufacture of ice cream. JSC Dairy stars and CJSC Vikeda, producing DADU ice cream, takes
in 20% of the market. "Kraitene - 18%, SC Klaipeda milk" - 7%, and other companies - 5%. All
mentioned company exports its products to EU countries and not only.
It should be noted that the ice cream manufacturing companies dominated by fierce
competition, companies regularly lasted reconstruction, to preserve the traditional flavor of news
to increase the range. Therefore, the entrance to the market rather complex.
3. VIVA ice cream price determination of 100 pcs3.1 Companies pricing methods
In reality, we won't find company which is perfect use of one method to determine the price
of the product. CJSC " Ingman ledai" set prices taking it to the competition. This strategy is
characterized by businesses that operate in an oligopolistic market.
3.2 VIVA vanilla ice cream EXW price calculationThe table below shows how the formation of the price of each of the cost elements, as well
as a percentage of the specific amount of the relative weight of price.
CJSC "Ingman
ledai"
30%
CJSC "Vikeda"20%
JSC "Pieno
vaigds"
20%
CJSC "Kraiten"
18%
JSC "Klaipdos
pienas"
7%
Others
5%
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Table 1 EXW price calculation
Nr. Prices element name
Price,
Lt.
Comparati
ve weight %
in price
1 2 3 4
Variable costs 88,41 89,44%
1.
Raw materials, parts (material consumption rate of material
x unit price) 60 57,3%
1.1. Cream ( 1 kg5 Lt )
9 kg 5 Lt 45 42,98%
1.2. Sugar (1 kg - 2 Lt)
2 kg 2 Lt 4 3,82%
1.3. Butter (0,2 kg - 1 Lt)
0,4 kg 1 Lt 2 1,91%1.4. Eggs (10 vnt. - 3 Lt)
30 vnt. 3 Lt 9 8,59%
2. Direct labor costs (labor cost rate x average salary)
2 hours 5 Lt 10 11,31%
3.
Equipment used in the operating costs (equipment
installation work hours hourly labor cost)
0,3 hour 51 Lt 15,3 17,31%
4. Social insurance (30.98% of salary) 3,1 3,51%
5. Contributions to the guarantee fund (0.1% of salary) 0,01 0,01%
1 2 3 4
Fixed costs 13,06 1,47%
6. Administrative costs (where 70% of salary)
7 0,79%7. Transport costs (where 6% of the materials cost)
0,06 60 Lt 3,6 0,41%
8. Packaging costs (where 0.1% of the materials cost)
0,001 60 Lt 0,06 0,007%
9. Storage costs (where 4% of the materials cost)
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0,04 60 Lt 2,4 0,27%
10. Product cost (variable cost + fixed cost) 101,47 90,91%
11. The mark-up (cost accessory) (where 10% of the cost) 10,15 9,09%
12. NET price 111,62 100,00%
13. VAT (21% of the created product)
0,21 (The net price - raw materials, parts value) 10,84
14. Final (gross) cost of the product 122,46
We get that 100 units of ice cream sales price including VAT is 122.46 Lt. From the table
we can see that the highest relative weight of variable costs, which constitute 89.44% of the
price. The variable costs include the material with the highest relative weight of the cream -
42.98%, as well as variable cost without a significant proportion of materials used in the
Howling equipment operating costs - 17.31% and direct wages, which accounts for 11.31% of
the price. Regular cost is only 1.47% of the price.
3.3 Product sales to the consumer pricing
Nr. Prices element name
Value,
Lt.
Comparative weight %
in price
1. List price (purchase price of the product EXW) 122,46 75,88%
2. Volume discount (here 6% of the list price)
0,06 122,46 Lt (7,35) (4,55)%
3. Skonto discount (here 2%)
0,02 (122,467,35) (2,3) (1,43)%
4. Product purchase cost (here 1.6%)
0,016 (122,467,352,3) 1,8 1,12%
5. Product purchase price 114,61 71,02%
6.
Fixed (overhead) costs (in this case 10% of the
purchase price)
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0,1 114,61 11,46 7,1%
7. Cost of sales (savikaina) 126,07 78,12%
8. The mark-up (cost accessory) (where 28% of the cost) 35,3 21,88%
9. Net price 161,37 100,00%
10. VAT (21% of the created product)
0.21 (Net Price - list price(kainoratin)) 8,17
11. Final (gross) cost of the product 169,54
We get that 100 units of ice cream consumer price including VAT is 169.54 Lt. From the
table we can see that the highest relative weight in calculating the cost of this method of list price
75.88% of the minus or plus discounts and expenses, get the goods at cost of 71.02%. It is also a
considerable weight of the price mark-up.
3.4 Break-even pricing method
CJSC Ingman ledai in the month sold 11 units of VIVA ice creams (1 unit100
packages) total of 1100 servings of ice cream. 100 pieces cost is 101.47 Lt (Table 1). Theproduction efficiency of 20%. It should be set to one of vanilla ice cream VIVA price.
BPK = 143,66 Lt = (13,08 11)
VKK = 88,41 Lt
BKK = 972,51 Lt = (88,41 11)
Calculate the primary cost:
S = BPK + VKK Q = 143,66 88,41 11 = 1116,17 Lt
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Calculate the amount of profit (A):
A = S a = 1116,17 0,2 = 223,23 Lt
Comprehensive income:
BPj = S + A = 1116,17 + 223,23 = 1339,4 Lt
Knowing that BPj Q,
P = BPj / Q = 1339,4 / 11 = 121,76 Lt
In order to achieve 20% efficiency to determine the price of 121.76 Lt for 100 units, and
one unit is expected to cost 1.22 Lt. Sold 11 packs of 100 pieces it will result in profit223,23
Lt.
There, where the areas of general revenue and general cost line is the break-even point. It is
also necessary to calculate the break-even point in units and value:
VKKP
BPKQnt
)400~.(100..441,8876,121
66,143pcssumpcsunQnt
VKKP
BPKPBPjnt
LtBPjnt 5,52441,8876,121
66,14376,121
Break-even point, 1 pav.
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1pic. Break-even graph
3.5 Optimal price level determinationThe optimal price is the price that guarantees maximum profits. A lower or higher price than
the optimal lower total profits. Using this method, first collected information on costs, prices and
demand. To develop a number of behavioral options. Determine the price at which profit is
maximum.
Description of the model. Prices and willing and able to buy in quantity interdependence can
be expressed by the equation:
PbaQ [1]
Qsales volume;
Pprice;
a and bcoefficients showing price and sales volume dependence.
The coefficients a and b can be determined using the least squares method, or by choosing
EXCEL program Tools Data Analysis Regression.
0
200
400
600
800
1000
1200
1400
1600
0 2 4 6 8 10 12 14
Lt
Q (100 pcs.)
BKK
BPK
BK
BPj
Break-even point
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Calculating the coefficients a and b are the least squares method solves equations:
Q = an + b P
(QP) = a P + b P2
nnumber of members in line.
Comprehensive income is calculated:
BPj= P Q [2]
Costs are expressed as:
QVKKBPKBK [3]
BKgeneral costs;
BPKgeneral fixed costs;
VKKaverage variable cost.
Profit is calculated:
= BPj BK [4]
BPjgross income.
These four equations of the complete pricing model, which can quickly calculate the level of
profit. It is the only one controlled by the size - the price. Demand and costs - fixed sizes. At any
given demand and cost levels, selecting the most profitable price. Optimal price under this
method to determine:
from a table (approximately);
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from the chart (approx.);
using the Weinberg formula (the exact price).
Weinberg formula to calculate the optimal price:
b
aVKKPo
22 [5]
Pooptimal price;
VKKaverage variable cost;
acoefficient; production sales whenP= 0;
bcoefficient; demand line deflection.
Model adaption
Chosen to identify (the same as in the previous tasks) the price determined by the company to
obtain the maximum profit.
For calculation using this data:
Q-demand
p- price(100 pcs.)
Table 3 Ice cream demand , pcs. /week.
Price (p), Lt Demand,
pcs. (Q 100)140 5
130 8
120 11
110 14
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100 17
General costs incurred by a firm:
Fixed costs,
Lt per week.
Variable costs
Lt/100pcs.
130,6 88,41
Variable costs are taken from the EXW price calculation. In this case, they include: materials
used + direct wages + equipment operating costs + direct labor + social security contributions.
so:
VKK= 60 + 10 + 15,3 + 3,1 + 0,01 = 88,41 Lt / 100 pcs.
Fixed costs are associated with time, i.e., taken time costs rather than production units spread
fixed costs. BPK = 143,66 Lt ( = 13,06 11) per week.
To determine the coefficients a and b, solve the task by the least squares method:
4 lentel. Duomenys maiausi kvadrat metodo realizavimui
P,
Lt
Q 100 Q p p n
140 5 700 19600
130 8 1280 16900
120 11 1320 14400
110 14 1540 12100
100 17 1700 10000
p=600 Q = 55 Qp = 6540p =
73000n=5
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Coefficients a and b are calculated by the least price approach:
Q = an +bp
Qp = ap +bp
55 = 5a + 600b
6540 = 600a + 73000b
a = (55 - 600b) / 5
a = 11 - 120b
6540 = 600(11 -120b) + 73000b
b = -16,67
a = 11 + 120 * 16,67
a = 2011,4
After inserting the estimated coefficients a and b into the equation we get vanilla ice cream
VIVA demand equation:
Q = 2011,4 16,67p
According it we calculate sales volume Q 100 by different prices p(80, 90, 100, 110,
120, 130, 140, 150, 160)
Q1 = 2011,4 - 16,67 160 = -656 = 0 pcs.;
Q2 = 2011,4 - 16,67 150 = -489 = 0 pcs.;
Q3 = 2011,4 - 16,67 140 = -322 = 0 pcs.;
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Q4 = 2011,4 - 16,67 130 = -156 = 0 pcs.;
Q5 = 2011,4 - 16,67 120 = 11 pcs.;
Q6 = 2011,4 - 16,67 110 = 178 pcs.;
Q7 = 2011,4 - 16,67 100 = 344 pcs.;
Q8 = 2011,4 - 16,67 90 = 511 pcs.;
Q9 = 2011,4 - 16,67 80 = 678 pcs.
Proceeds from sales are calculated by the 2nd formula:
BPj1 = 160 0 = 0 Lt;
BPj2 = 150 0 = 0 Lt;
BPj3 = 140 0 = 0 Lt;
BPj4 = 130 0 = 0 Lt;
BPj5 = 120 11 = 1320 Lt;
BPj6 = 110 178 = 19547 Lt;
BPj7 = 100 344 = 34440 Lt;
BPj8 = 90 511 = 45999 Lt;
BPj9 = 80 678 = 54224 Lt.
Production costs are estimated by a 3rd formula:
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BK1 = 143,66 + 88,41 0 = 143,66 Lt;
BK2 = 143,66 + 88,41 0 = 143,66 Lt;
BK3 = 143,66 + 88,41 0 = 143,66 Lt;
BK4 = 143,66 + 88,41 0 = 143,66 Lt;
BK5 = 143,66 + 88,41 11 = 1116,17 Lt;
BK6 = 143,66 + 88,41 178 = 15854,12 Lt;
BK7 = 143,66 + 88,41 344 = 30592,06 Lt;
BK8 = 143,66 + 88,41 511 = 45330,01 Lt;
BK9 = 143,66 + 88,41 678 = 60067,96 Lt.
Profit is calculated by 4th formula:
1 = 0143,66 = - 143,66 Lt;
2 = 0 - 143,66 = -143,66 Lt;
3 = 0 - 143,66 = -143,66 Lt;
4 = 0 - 143,66 = -143,34 Lt;
5 = 13201116,17 = 203,83 Lt;
6 = 1954715854,12 = 3692,88 Lt;
7 = 3444030592,06 = 3847,94 Lt;
8 = 4599945330,01 = 668,99 Lt;
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9 = 5422460067,96 = -5843,96 Lt;
Calculation results showed in this table.
Tabale 5. Expected sales of the company, revenues, costs and profits.
Nr.
Price (P),
LT Sales volume General costs Profit or loss
Sold Income from (BK), Lt
products sales (), Lt
quant.(Q100) (BPj)
1 160 0 0 143,66 -143,66
2 150 0 0 143,66 -143,66
3 140 0 0 143,66 -143,66
4 130 0 0 143,66 -143,66
5 120 11 1320 1116,17 203,83
6 110 178 19547 15854,12 3692,88
7 100 344 34440 30592,06 3847,94
8 90 511 45999 45330,01 668,99
9 80 678 54224 60067,96 -5843,96
Purpose of the method - to set a price that maximize profits. So, the results of the
calculation, and we see that the objective has been achieved. In this case, the maximum profit (
= 3847.94 Lt) is obtained when sold in 344 VIVA vanilla ice pack (pack of 100 pcs. ice cream)
100 lt for one box of ice cream. Thus, the approximate optimal cost is 100 Lt for 100 servings..
According to Table 5, the data charted in sales and general cost-price schedule, which also
allows to estimate the size of the optimal price.
The difference between the total revenues and total costs are gross profits. So, when the
vertical distance between the total revenues and total costs are the highest, the level of the price
and the optimal price is.
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Plotting a graph of the calculated data (2 pav.)
2 pav. Revenues and general costs dependancy from price
Price determined graphically is not accurate, so in order to accurately determine the optimal
price formula is applied Weinberg (5th formula).
.54,104
67,162
4,2011
2
41,88LtPo
Qo = 2011,4 + (-16,67) 104,54 269 pcs.;
BPj = 104,54 269 = 28121,26 Lt;
BK = 130,6 + 88,41 269 = 23912,89 Lt;
= 28121,26 23912,89 = 4208,37 Lt.
0
10000
20000
30000
40000
50000
60000
70000
0 50 100 150 200
BPj,BK
Price
BK
(BPj)
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So, if the above condition, the company in order to maximize profit, 100 pcs. ice cream sales
price of 104.54 Lt per week and sold 269 units. ice cream for it will receive 28,121.26 Lt gross
income and earn 4208.37 Lt profit.
3.6 Existing enterprise pricing strategy for discounts
Currently, CJSC Ingman ledai took the largest Lithuanian production of ice cream
market. Each year, the company achieves even better results. Fierce competition among firms
causes the production of ice cream to improve, improve quality, deliver the news. As
organization operates in an oligopolistic market, it can not ignore the competition. This is the
main strategy of the company for price fixing. But as we know, in reality companies not just one
strategy, they are few. It is easy to see from the company's history, the company Ingman ice
cream adheres to high quality standards. This is one of the strategies - price and quality strategy.
The company takes the average price - a high quality strategy.
Company's pricing behavior:
When a company spends news, its price is usually high, but after a while it becomes
lower. That way the company wants to get excess profits "skimming the cream".
Manufacture of ice cream is seasonal production. In the summer people to freshen
up the heat a lot more eats ice cream. At that time, the price of ice cream rises, and
vice versa in the winter - dropping.
CJSC Ingman ledai discounts are up to 10 percent. The company usually offers discounts
for regular customers, paying attention to the size of the order. If the order of about 100 liters of
ice cream, a discount of 10 per cent. When booking a small but steady customer is buying a
discount of 5 to 10 percent.
With discounts CJSC"Ingman ledai seeks this goals :
increase the turnover of goods;
to increase customer loyalty.
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4. CONCLUSION
During examination of the theory and the theoretical result of the task, I found that CJSC
Ingman ledaiprice fixing have impact on the market, its competitors, and its overall cost.There is no one specific indicator of the oriented company. The price depends on the method of
determining the results of the company ie they gain market share and what it will take.
After organization analysis I have identified:
1. The company's goal - a long time to get profits and increase turnover. It provides
eco-friendly and high-quality production average prices, rapid response to customer
needs. This is a high quality mid-price strategy. Some sources even call it a medium pricestrategy (neutral pricing).
2. Although CJSC Ingman ledai is a Lithuanian ice cream market leader, setting
prices, forced to take into account the prices of its competitors. Because it operates in an
oligopolistic market, where there are still a few large competitors with prevalence of
fierce competition. This strategy is, and then focused on the competition. Yet take into
account the overall costs. As we can see, there's agree and pricing method, based on the
general cost.
3. EXW ice cream price (100 pcs.) 122,46 Lt.
4. Method of sale to the customer price (100 pcs.) - 169,54 Lt.
5. Break-even method (100 pcs.)100 Lt
6. Optimal price level (100 pcs.) 104,54 Lt.
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5. REFERENCES
1. A. Bartkien, Rinkos kain politika ir kainodara. Vilnius: Valstybinis leidybos centras,
1993.2. A. Mieinskien, Kainodara. Paskait konspektas. 2009m.
3. J. Rastenis, Kainodara: mokomoji knyga. Kaunas, KTU, 2000.
4. L. Bagdonien. R. Hopenien, Paslaug marketingas ir vadyba. Kaunas: Technologija.
2004m.
5. http://www.verslobanga.lt/lt/patark.full/3c22d8507dabd
6. www.ingman.lt
7. V. Kutut, Techninis normavimas ir kainodara. Vilnius: Technika. 2006. (pricing)