Advantages And Disadvantages Of Cost Oriented Pricing

Some firms fix the price of a product based on the demand, instead of fixing the price on the basis of competitors price or costs. Demand oriented pricing is based on an estimate of how much sales volume can be expected at various prices which can be paid by different types of buyers. If the demand is high the price will be higher and if the demand is low the price will be lower. In such situation, price is fixed neither based on the cost nor on the price of competitors. There are two methods adopted for fixing the price in such situations. They are:

6. Prices were not attractive to all customers , because quality of the product were based and caterogorized using price value.

Cost-plus pricing lead to a complicated pricing structures, since distributors and customers negotiated separate product prices from manufacturers, introduced incentives, let prices vary from customer to customer, covered some products by contract and some don’t etc.

Value-based pricing: this pricing strategy consider the value of the product to consumers rather than the how much it cost to produce it. Value is based on the benefits it provides to the consumer e.g convenience, well being, reputation, joy.

And the customer are sensitive to the price since those products are using only few times and need to be change all the time.

Low pricing eventually results in loss of customer loyalty as pricing to bottom is a risky business strategy.

As is known, pricing is one of the most important steps for business plan which needs good research, calculations and formulations. There are different pricing strategies to put into effect due to the market and product conditions, such as premium pricing, penetration pricing, economy pricing, price skimming(Voice Marketing, 2012). These four pricing strategies are main pricing policies. They form the bases for the exercise. However there are other important approaches to pricing. These pricing strategies are: Psychological pricing, product line

Designing an appropriate pricing strategy is always a challenging task for most corporations, because price is a determinative factor of operating profits. Meanwhile, price can affect customer perceptions and product development. According to the basic economic theory, pricing policy should reflect the product’s costs and the relationship between supply and demand. In addition to the fundamental framework, price settle mechanism should take into consideration the underlying industry environment. For example, pricing in manufacturing is heavily cost-based with the certainty that the costs are fully covered. And conversely, in some particular sectors, there are downsides when price setting relies solely on the variable costs because of the high fixed cost. Based on this judgment, product providers should carry different pricing mechanism under different market conditions. Accordingly, pricing evolves from a purely academic topic related to the economic theories to a profits-maximising instrument involved with marketing practices. All these issues make the price setting problem more

Commonly prices are based on the marketing needs of the business. There are often temporary price strategies used to achieve a particular short-term target, called tactical pricing. Promotional pricing is designed to

Depending upon the sales and demand in the market, prices can change for the products.

The strategy for setting a product’s price often has to be changed when the product is part of a product mix. In this case, the firm looks for a set of prices that maximizes its profits on the total product mix. Pricing is difficult because the various products have related demand and costs and face different degrees of competition.

Keeping these realities in mind, it is very much obvious that for this market, we choose and follow a value based pricing and do not keep the price of the product too high. It is advisable rather to follow an average pricing and let the consumers build some enthusiasm around the product.

Price interacts with all other elements of the marketing mix to determine the effectiveness of each and of the whole. The objectives that guide pricing strategy should be a subset of the objectives that guide overall marketing strategy. Thus, it is probably wrong to view price as an independent element of marketing strategy or to assert that price, by itself, is a central element in the marketing mix.” (Webster, 1979)

Although consumers noticed it but decided to go along with it as far as the company does not tingles with prices.

Price, which is one of the most important elements of the marketing mix, can be difficult to get right. Pricing too high, or low, can negatively impact on customer satisfaction and revenue. Adopting a pricing strategy is necessary to achieve desired sales objectives (Chan & Wong 2005).