Under cost based pricing method ,costs incurred in producing , & distributing the product is identified as direct costs & indirect costs . All the direct costs are calculated on goods sold (called prime costs) & added with indirect fixed & variable production overheads, administrative overheads, & selling & distribution overheads. when total cost of sales is arrived, a certain percentage of profits (depending on economic condition of customers , competitive factors , subsidies available , & return on investment expected ) is charged on total cost of sales. If subsidies fro government is available per unit of product it will be set-off against total cost to base profit percentage on net cost.
Cost plus pricing is based on full product cost plus desired profit margin to arrive at the product price, while marginal cost plus pricing makes use of the product's total variable cost plus desired profit margin to arrive at the product's price. Marginal cost plus pricing (or "mark-up pricing) is based on demand, and completely ignores fixed costs in arriving at the product's price.
Gross Margin Pricing
There are four general pricing approaches:1) mark-up pricing - is to have a fixed mark-up on the cost of the product to set the price, ex: retail stores2) value-based pricing (demand-based pricing) is setting price based on buyers' perceptions of value independent of cost, ex: Louis vuitton and rolex (nobody ever questioned how much it costs to make a rolex cost, price is not in relation to cost. people base it on how many people have it, brand name)3) value pricing: is offering the right combination of quality and good service at a fair price, ex: value meal menu4) comepetition-based pricing: is to set price following that of the industry leader ex: breakfast cereal (ex: kellogs)
The advantage of full cost plus pricing is the higher return on investment. The disadvantage of full cost-plus pricing is lower demand for the products.
High and low method is the method for separating fixed cost and variable cost from mixed cost.
The cost based pricing may overlook costs that are not monetary. Cost based pricing may overlook inefficiency Cost based pricing may not take advantage of consumer surplus.
Value based pricing is a method of pricing a product based on perceived value. This method sets aside the issue of production and distribution costs and focuses more on what the buyer is willing to pay. This method of pricing is the most popular way to bring more profits to a company's table.
Cost based pricing uses the costs that were invested in producing the goods. In market based pricing, supply and demand are the key factors that determine price.
I'm doing a school assignment so I have no clue! :)
Value based pricing is a method of pricing a product based on perceived value. This method sets aside the issue of production and distribution costs and focuses more on what the buyer is willing to pay. This method of pricing is the most popular way to bring more profits to a company's table.
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value-based pricing approach
Cost plus pricing is based on full product cost plus desired profit margin to arrive at the product price, while marginal cost plus pricing makes use of the product's total variable cost plus desired profit margin to arrive at the product's price. Marginal cost plus pricing (or "mark-up pricing) is based on demand, and completely ignores fixed costs in arriving at the product's price.
Gross Margin Pricing
A way of determining prices based on what competitors are selling their products for.
Value based pricing is based on percieved value of goods and services in view of customer. A marketer look at the price being offered to customer that how a customer is percieving the value of goods or services. It is price where all cost of product has been accounted and a fair judgment about percieved value for customer in market.
Pricing is based on direct labor and overhead. Materials does not affect pricing. Example: Your customer provides materials used in production.