What to pay attention to? The cost-based pricing method can hardly be called universal. During calculations, market fluctuations, the product life cycle, and the reaction of buyers to all this, which today plays a key role in sales, are not taken into account.
In this article:
The essence and objectives of pricing
Cost-Based Pricing
Types of cost-based indonesia email database pricing methods
Active and passive pricing within the cost method
Cost-based pricing method in public procurement
Risks of Cost-Based Pricing
Alternatives to Cost-Based Pricing
Pricing Strategies
Frequently Asked Questions about Cost Based Pricing
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The essence and objectives of pricing
Cost is a key element of the marketing mix. Incorrect pricing can lead to losses and business closure. If the cost is too high, customers will not buy the product. And if it is too low, it will not cover the company's costs. Pricing methods help determine the optimal cost of a particular product.
The essence and objectives of pricing
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The pricing method is chosen for each item or group of goods, focusing on the tasks that the company solves with the help of a specific product. For example, a bakery can set a minimum price for bread to increase sales and attract new customers, and a high price for sweet buns, ensuring the main profit.
Let's consider possible pricing tasks:
Survival . In conditions of intense competition and unpredictable demand, it is necessary to guarantee the existence of the company. Profit fades into the background. The business aims to set a price that will cover production costs.
Maximizing Current Profits : It is important to determine the optimal relationship between demand and product cost so that the company receives maximum benefit.
Increase in sales volumes . Pricing is aimed at increasing sales turnover. This approach is used in the case of seasonal goods or products with a limited shelf life. Lower prices lead to increased demand, which contributes to sales growth.
Fighting Rivals : Competition between companies encourages the use of various methods, such as discounts, other privileges, and dumping, in order to force others out of the market, even if this results in temporary losses.
The underlying pricing objective may change over time, even for the same product. For example, when launching a new cookie, a company may set its price below that of its competitors to attract new customers. Once the product has gained customer confidence, the company may raise its price to maximize profits.
The essence and objectives of pricing
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The following key factors influence the price of goods and services:
Costs of manufacturing and production of products . The determining factor is the cost price, which sets the lower limit of the cost of the goods.
Level of competition and pricing strategy of competitors . The more players in the market, the more stable the price. A company that provides a unique product and is a monopolist has the right to set prices above the market level.
Segmentation by price categories . There are different segments - from budget and mid-range to premium and luxury.
The value of the product for the end consumer, the price-quality ratio . The benefit that a person receives from the purchase determines the additional cost of the product. That is, even a product with a low cost price can be sold at a high price if it brings real benefits. Factors such as brand and target audience also affect the final cost of the product.
Concepts such as the Giffen and Veblen effects play an important role, as they shape the subjective value of the product for the consumer. The customer's personal circumstances influence pricing: the cost of watermelons varies depending on whether they are bought at a market or in a specialty store.
Elasticity of demand . It implies a change in demand for a product when its price is adjusted. Such products are considered elastic. While demand for products with an unchanged cost remains stable. In Russia, this group includes such products as electricity, gasoline, bread, and salt.
Phases of the product life cycle . When a product first appears on the market and when it begins to lose popularity, the pricing strategy can be very different.
Rules and laws . Established regulations and requirements can have a significant impact on prices. For example, the introduction of new safety standards in the automobile industry affected the price of vehicles. The state also has the ability to control the prices of certain goods, such as essential drugs, or to impose excise taxes to regulate demand.
Financial aspects : economic situation in the country, level of cost of goods, fluctuations in exchange rates.