Question

A large consumer good company recently enterd the business market with a new product with broad industrial application. They are in the process of determining the appropriate price for the business to business product. Discuss the role of cost in determining price and indicate some of the key cost consideration that must be evaluated in setting price.

Answer 1

While setting up a B2B product's price, following factors should be considered, including cost:

1. The state of the market: It includes knowing the market equilibrium whether there is a surplus or shortage of the product in the market so that price can vary accordingly.

2. Economy: It includes various macroeconomic functions like inflations and policies by the government and knowing whether the economy as a whole is doing well or not. Is the product complying with the govt policies or not.

3. Costs: The costs associated with the product which the company is paying while developing it so that proper margins are included while framing the price for it. The cost can include design cost, ideation, development, marketing, selling and distribution and finally discounts made for gaining the initial traction in the market.

4. Competitors: The threat of replacement and competition analysis should be done while pricing a product to make the product look attractive and also not lose out from the existing pates in the market.

5. Bargaining power of buyers: The bargaining power of buyers is an important choice while considering the price because the availability of alternatives with them makes them eager to use our product. Greater the alternatives, more the buyer's power.