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Article
Publication date: 3 April 2018

Reinaldo Guerreiro and Juliana Ventura Amaral

While the gap between economic theory and companies’ practice, regarding to the pricing setting, has been extensively explored and explained, the new gap between the marketing…

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Abstract

Purpose

While the gap between economic theory and companies’ practice, regarding to the pricing setting, has been extensively explored and explained, the new gap between the marketing normative view and companies’ practice needs further clarification. In this way, the paper aims to investigate whether marketing researchers’ claim that the use of cost-based price approach prevails over the use of value-based price approach is pertinent.

Design/methodology/approach

The paper is guided by the following research question: “Does price-setting based on cost plus margin go against the value-based price approach?” The answer to this question is grounded in reflections on results of previous research studies and in a case study conducted in an industrial company. Because of the qualitative focus of the present study, hypotheses are not established, but rather the following proposition: certain companies use the mechanics of cost plus margin in the sale price-setting process, but it does not necessarily mean that these companies set prices based on cost.

Findings

The arguments, propositions and the case study findings provide the logical sequence and the support required to conclude that price-setting based on cost plus margin does not always conflict with the value-based price approach. As a result, it may be claimed that the general proposition established is theoretically valid, i.e. using a price formula that contains the elements cost and margin does not necessarily mean that the company sets prices based on cost.

Originality/value

The key contribution of this paper is demonstrating that in certain business environments, such as, B2B, using the price formation mechanics based on cost plus margin is the way found by companies to enable the approach adopted. The approach may be cost-based or value-based price. This is the first study that explicitly reveals how B2B companies may set prices based on value while simultaneously preserving the simplicity of cost plus margin formulas. Researchers have significant misconceptions about these formulas: in previous studies, they classified all price-making companies as those adopting the cost-based price approach simply because they used formulas containing the element cost.

Details

Journal of Business & Industrial Marketing, vol. 33 no. 3
Type: Research Article
ISSN: 0885-8624

Keywords

Article
Publication date: 1 July 1997

Stephen M. LeBruto, Robert A. Ashley and William Quain

Managing food service operations to achieve a specific food cost percentage has long been a fundamental principle of the restaurant business. Management bonuses and other rewards…

6613

Abstract

Managing food service operations to achieve a specific food cost percentage has long been a fundamental principle of the restaurant business. Management bonuses and other rewards are often based on achieving these predetermined goals. Available tools such as menu engineering and contribution margin, although sound in theory, are not frequently used. Demonstrates the use of menu engineering and contribution margin concepts in terms of customers served. Concludes that the goal of any restaurant should be to apply marketing techniques based on menu engineering and contribution margin concepts in order to achieve the highest possible financial results.

Details

International Journal of Contemporary Hospitality Management, vol. 9 no. 4
Type: Research Article
ISSN: 0959-6119

Keywords

Article
Publication date: 1 February 1991

D.R. Scott

Many standard texts (for example, see) identify that business, through the marketing function, relates to the profitable satisfaction of customer needs and wants. In general…

Abstract

Many standard texts (for example, see) identify that business, through the marketing function, relates to the profitable satisfaction of customer needs and wants. In general, however, the concept of cash flow and contribution margins is seldom mentioned in non‐financial texts, except in the case of strategic models such as that described by Henderson, when it tends to be utilised mainly in an abstract and historical sense rather than in a dynamic sense.

Details

Asia Pacific International Journal of Marketing, vol. 3 no. 2
Type: Research Article
ISSN: 0954-7517

Article
Publication date: 7 November 2008

Reinaldo Guerreiro, Sérgio Rodrigues Bio and Elvira Vazquez Villamor Merschmann

This paper aims to assess the usefulness of cost‐to‐serve for customer profitability management through literature review and a case study in a food‐industry company.

6015

Abstract

Purpose

This paper aims to assess the usefulness of cost‐to‐serve for customer profitability management through literature review and a case study in a food‐industry company.

Design/methodology/approach

The research is based on a case study. The study presents the state‐of‐the‐art of the literature review related to cost‐to‐serve measurement and customer profitability analysis and a case study of a Brazilian food‐industry company with high operational complexity and an extensive customer product and commercial service line.

Findings

The literature review demonstrates that few empirical studies have actually addressed the problem of cost‐to‐serve measurement and customer profitability analysis. The findings of the study show that the measurement of cost‐to‐serve provides specific and detailed customer information that enables a more comprehensive customer profitability analysis than the classical paradigm.

Research limitations/implications

A single case study does not allow the results to be generalized to other organizations.

Originality/value

The paper includes a comprehensive review of literature and the empirical case study in a Brazilian food company offers additional insights in cost‐to‐serve measurement and customer profitability analysis.

Details

The International Journal of Logistics Management, vol. 19 no. 3
Type: Research Article
ISSN: 0957-4093

Keywords

Article
Publication date: 5 October 2015

Jian-yu Fisher Ke, Robert J. Windle, Chaodong Han and Rodrigo Britto

The purpose of this paper is to propose that transportation modal mix in global supply chains is a result of the strategic alignment between industry characteristics and supply…

3340

Abstract

Purpose

The purpose of this paper is to propose that transportation modal mix in global supply chains is a result of the strategic alignment between industry characteristics and supply chain strategies.

Design/methodology/approach

Using annual US trade statistics and manufacturing industry data for the years 2002-2009 between the USA and its top 12 Asian trading partners, this study applies various regression methods to examine key factors associated with the transport modal decision.

Findings

The results show that industry characteristics have an impact on the transportation modal mix in global supply chains. Manufacturing industries use more air freight and less ocean freight when facing positive sales surprises, high-monthly demand variation, a high-contribution margin ratio, a high cost of capital, and increased competition.

Practical implications

The findings provide important insights for logistics managers and freight forwarders. While transportation cost remains an important concern, a logistics manager must also consider non-cost factors such as competition, working capital, and demand uncertainties in their modal decisions. Freight forwarders should be supply chain solution providers who consider all of these industry factors and suggest a proper mix of transportation modes for their customers.

Originality/value

This study is among the first efforts to examine the impact of industry characteristics on the transportation modal mix in global supply chains. This study first develops a theoretical framework for the modal choice decision for international transportation movements and then, using an extensive and innovative data set, provides new findings regarding current air freight practices in global supply chains.

Details

International Journal of Physical Distribution & Logistics Management, vol. 45 no. 9/10
Type: Research Article
ISSN: 0960-0035

Keywords

Article
Publication date: 2 March 2015

Martin Hinch, Jim Berry, William McGreal and Terry Grissom

The purpose of this paper is to analyse how London Interbank Offered Rate Index (LIBOR) and the spread between LIBOR and the base rate of interest as set by the Bank of England…

Abstract

Purpose

The purpose of this paper is to analyse how London Interbank Offered Rate Index (LIBOR) and the spread between LIBOR and the base rate of interest as set by the Bank of England (BoE) influences the variation in house prices in the UK.

Design/methodology/approach

This paper uses monthly data over a long time series, since 1986, to investigate the relationships between house price and LIBOR. Data are drawn from several different sources to include housing, financial and macro-economic variables. The time series is sub-divided into a series of splines based on stages in the economic and property market cycle. Both value-based and percentage change models are developed.

Findings

The results show that BoE base/LIBOR margin variable has a strong positive and significant effect on house price; however, the percentage change model infers a weaker and inverse relationship. The spline analysis re-emphasised the significance of the BoE base/LIBOR margin variable. Where variation between base rates and LIBOR is reduced, a significant positive effect can be observed in the average house price; however, where significant variation exists, the BoE base/LIBOR margin has little effect and LIBOR itself becomes a significant driver.

Research limitations/implications

The results highlight that the predictive qualities of the BoE base/LIBOR margin, as the contribution of this margin to the explanation of house price, exceeds both the base rate and LIBOR variables individually. Also highlighted is the contribution of unemployment to the explanation of house price. In both the value and percentage change models, unemployment is shown as a negative and highly significant contributor.

Originality/value

Previous papers have demonstrated the important linkage between house price and interest rates, the originality in this paper lies in examining the impact of LIBOR and the spreads between LIBOR and base rate as key variables influencing variation in UK house prices.

Details

International Journal of Housing Markets and Analysis, vol. 8 no. 1
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 1 December 2000

John C. Groth, Steven S. Byers and Garland D. Simmons

Focuses on critical issues related to variable cost drivers essential in establishing criteria or parameters to consider in the modification and/or design of production…

1217

Abstract

Focuses on critical issues related to variable cost drivers essential in establishing criteria or parameters to consider in the modification and/or design of production facilities. Key concepts and relationships influence the choice of alternative technologies and methods in the design, upgrading, modification, or expansion of manufacturing and process facilities. Cost relationships are important in evaluating whether to retain an existing facility or, alternatively, scrap the assets and “start over”. For brevity, focus is restriced to decisions concerning overhaul, modification, upgrade, expansion, abandonment, and fresh investment as “design”.

Details

European Business Review, vol. 12 no. 6
Type: Research Article
ISSN: 0955-534X

Keywords

Article
Publication date: 1 April 2009

S.L. Middelberg, S. van Rooyen and A.J. Pienaar

Cost management is essential in every organisation, especially in an increasingly competitive environment (Jain & Yadav 2006:352). The management of distribution costs has become…

Abstract

Cost management is essential in every organisation, especially in an increasingly competitive environment (Jain & Yadav 2006:352). The management of distribution costs has become increasingly important because of the rising fuel costs in recent years (Gaffney 2008:40). Delivery routes should be optimised in order to reduce distribution costs. This article presents a comprehensive segment margin approach model for determining the financial viability of delivery routes. A specific bakery (henceforth referred to as Bakery A) was selected as a case study, and the use of general management accounting principles in determining the financial viability of delivery routes was specifically investigated.

Details

Meditari Accountancy Research, vol. 17 no. 1
Type: Research Article
ISSN: 1022-2529

Keywords

Article
Publication date: 13 March 2017

Antonia Estrella-Ramón, Manuel Sánchez-Pérez, Gilbert Swinnen and Koen VanHoof

The purpose of this paper is to provide a customer lifetime value (CLV) model to carefully assess and classify banking customers using individual measures and covering customers’…

Abstract

Purpose

The purpose of this paper is to provide a customer lifetime value (CLV) model to carefully assess and classify banking customers using individual measures and covering customers’ relationships with a portfolio of products of the company.

Design/methodology/approach

The proposed model comprises two sub-models: (sub-model 1) modelling and prediction of CLV in a multiproduct context using Hierarchical Bayesian models as input to (sub-model 2) a value-based segmentation specially designed to manage customers and products using the latent class regression. The model is tested using real transaction data of 1,357 customers of a bank.

Findings

This research demonstrates which drivers of customer value better predict the contribution margin and product usage for each of the products considered in order to get the CLV measure. Using this measure, the model implements a value-based segmentation, which helps banks to facilitate the process of customer management.

Originality/value

Previous CLV models are mostly conceptual, generalisation is one of their main concerns, are usually focussed on single product categories using aggregated customer data, and they are not design with a special emphasis on their application as support for managerial decisions. In response to these drawbacks, the proposed model will enable decision makers to improve the understanding of the value of each customer and their behaviour towards different financial products.

Article
Publication date: 24 April 2020

Richard Kwasi Bannor, Helena Oppong-Kyeremeh, Steffen Abele, Frank Osei Tutu, Samual Kwabena Chaa Kyire and Dickson Agyina

The unavailability and inadequate use of cashew seedlings for propagation are part of the challenges facing the cashew sub-sector in Ghana. However, promoting investment into…

Abstract

Purpose

The unavailability and inadequate use of cashew seedlings for propagation are part of the challenges facing the cashew sub-sector in Ghana. However, promoting investment into cashew seedling production should be based on the analysis of the profitability and viability of such a venture as well as the respective determinants of farmers' demand for the planting material.

Design/methodology/approach

This study used gross margin/contribution, net margin and contribution ratios to analyse the profitability of cashew seedling production under four different business models. Also, the determinants of choice of planting material for cashew plantation among farmers was analysed via a multinomial probit regression.

Findings

The study revealed that cashew seedling production is profitable with a gross margin of $8,474, $2,242, $1,616 and $1,797 and contribution to sales of 31–53% for the various business models. The positive determinants of the use of cashew seedlings were off-farm job participation and extension contact, whereas farm size and age of plantation negatively influenced the use of seedlings. Land acquisition method also influenced the use of both seedlings and seeds negatively.

Practical implications

The findings provide empirical evidence of the viability and profitability of cashew seedling production as a viable business venture and off-farm opportunity in rural areas. The information from the study will help major stakeholders in cashew production to understand the type of farmers who use seeds and seedlings as well as the reasons for using or otherwise.

Originality/value

Significant research in the cashew value chain had focussed on the profitability of cashew plantation with little literature on profitability and viability analysis of cashew seedling production. Similarly, this study provides a significant value chain job opportunity as well as literature on the choice of cashew seedlings among current and prospective end-users.

Details

World Journal of Entrepreneurship, Management and Sustainable Development, vol. 16 no. 2
Type: Research Article
ISSN: 2042-5961

Keywords

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