Question

When would you want to use value-of-service pricing instead of cost-of-service pricing?

When would you like use negotiated pricing?

Answer 1

Cost-based pricing uses the cost of manufacturing or of production as the pricing basis. The cost-based pricing business takes advantage of its expense to determine a price floor and a price limit. The floor and ceiling for a particular good or service are the minimum and maximum prices; they act as price range. When the market dynamics are such that the prevailing selling price is below the price floor, the business could be competing on the floor or trying to reduce the floor's costs. the business will price somewhere in between the floor and the ceiling. Many companies that produce in masses use this pricing strategy, such as companies that produce textiles, food products and building materials.

A value-based pricing business takes into account the value of the product or service, as opposed to the costs incurred by the company to develop and manufacture it. To do so, the organization decides how much revenue it can produce for the consumer, or value the product or service. This importance can come from factors like improved productivity, satisfaction or stability. This pricing technique is mostly used by businesses or individuals manufacturing drugs, chemicals, and computer programs and software and artworks.

Pricing based on the product usually leads to competitive prices. Industries using this approach may be targeting buyers who are searching for affordable goods and services. Value-based pricing firms frequently receive high profits for each item sold, but certain customers may not be able to pay a rival for the high price and buy.
If a business is using cost-based pricing, it is priced between the market floor and the market limit. The business dynamics determine where the firm sets its pricing between the floor and the ceiling. When it uses rates based on demand, the business must set the pricing within a range dictated by what consumers are willing to pay. In general, the price is higher dependent on interest.

Many customers are conditioned to try to lower the price with those strategies. When buyers take this kind of strategic and win-lose strategy, their aim is usually to at the seller's expense benefit the most for themselves. For example, smart buyers know that when a contract is about to be signed, many sellers would be especially susceptible to bribery. At this point, it is tempting for the seller to give the buyer what they want and lower the price instead of digging deeper to discover whether their complaints are real, or a bluff.