abhishreshthaa
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Selection of most appropriate Pricing option
The pricing methods available are:
1. Market Skimming: This strategy involves a deliberate attempt to reach a market segment that is willing to pay a premium price for a product.
The strategy is often used to introduce high value products. E.g. new computer models.
2. Penetration Pricing: This strategy uses price as a competitive weapon to gain market position.
In this case, scale-efficient plants and low-cost labor allow companies that use this strategy to blitz the market with low introductory product prices.
3. Market Holding: This strategy is usually adopted by companies that want to maintain their market shares.
For example, when one airline announces special bargain fares, most competing airlines must match the offer or risk losing passenger.
Often in adjusting prices to fit the competitive situation, firms may experience lower profit margins.
4. Cost Plus/Price Escalation: Companies that are new in exporting frequently use the cost-plus pricing strategy to gain a toehold in the global marketplace.
There are two cost-plus pricing methods:
a) The historical accounting cost method, which defines cost as the sum of all direct and indirect manufacturing and overhead costs.
b) The estimated future cost method.
Cost-plus pricing requires adding up all the costs required to get the product to where it must go, plus shipping and ancillary harges, and a profit percentage.
The advantage of using this method is its low threshold.
The disadvantage of using historical accounting costs to arrive at a price is that this approach completely ignores demand and competitive conditions
The pricing methods available are:
1. Market Skimming: This strategy involves a deliberate attempt to reach a market segment that is willing to pay a premium price for a product.
The strategy is often used to introduce high value products. E.g. new computer models.
2. Penetration Pricing: This strategy uses price as a competitive weapon to gain market position.
In this case, scale-efficient plants and low-cost labor allow companies that use this strategy to blitz the market with low introductory product prices.
3. Market Holding: This strategy is usually adopted by companies that want to maintain their market shares.
For example, when one airline announces special bargain fares, most competing airlines must match the offer or risk losing passenger.
Often in adjusting prices to fit the competitive situation, firms may experience lower profit margins.
4. Cost Plus/Price Escalation: Companies that are new in exporting frequently use the cost-plus pricing strategy to gain a toehold in the global marketplace.
There are two cost-plus pricing methods:
a) The historical accounting cost method, which defines cost as the sum of all direct and indirect manufacturing and overhead costs.
b) The estimated future cost method.
Cost-plus pricing requires adding up all the costs required to get the product to where it must go, plus shipping and ancillary harges, and a profit percentage.
The advantage of using this method is its low threshold.
The disadvantage of using historical accounting costs to arrive at a price is that this approach completely ignores demand and competitive conditions