How costs vary at different production levels will influence price setting
Experience (learning) curve effects on price
Internal Factors Factors to Consider in Setting Price (contd.)
Strategic Impact & Cost Analysis: Pareto Law Effect
CitiBank NA Example
80% of Cost Structure on staff and even Marketing Expenses is caused by 20% of Accounts for their Low Deposits and high Transaction Volume.
There are only few things that are really important.
If you successfully improve 20% of the most important problems, you will gain the same effect as you would by improving the rest 80%. This represents a big advantage with respect to cost versus effect.
For an Effective Cost-Structure:
20% of the Customers and 20% of the Services contribute 80% of Revenue.
Rationalize 80% services & Purify 80% Accounts as they contribute only 20% of revenue.
Eliminate Services & Accounts in the Bottom-Right-Cell as they are certainly running at a loss .