Question

Pricing Strategy. Name and discuss a major pricing strategy (i.e. cost plus pricing, competition-based pricing, break-even-based pricing, penetration-based pricing, premium pricing) aligned to a products and/or services’ that is exported to a foreign country within the overall market strategy of the global marketplace.

Answer 1

Cost Plus Pricing: Cost plus pricing can be understood from its name itself. It is simply a mark up over all the cost incurred.

Cost plus pricing = Direct material cost + direct labor cost + overhead costs for a produt + markup percentage.

Advantage: 1. Simple and easy to derive, 2. Contractor can use it as it's very helpful since it is assured to have the cost get reimbursed

Disadvantage: 1. Not helpful for competitive market, 2. Based on historical cost, replacement cost doesn't count.

Competition-based pricing: It is a pricing which is used for those product and services which are mainly exist in competitive market.

This pricing method focuses on information from the market rather than production costs (cost-plus pricing).
Here the price leader use to set the bench mark.

Price above bench mark can results a diminished sale where for below bench mark, one has to sell more product to get the profit.

Advantage: No complex computations are required. Sellers simply can follow a market price.

Disadvantage: In huze competitive market any mistake in this type of pricing can incurred huze loss.

Break even pricing: Break even point says no loss no gain. So, it is a price where the business earns zero profits on a sale. The intention is to use low prices to gain market share and drive competitors from the marketplace.

Break even price = (Total fixed cost / Production unit volume) + Variable cost per unit

Advantage: 1. Reduce competition, 2. Market dominance.

Disadvantage: 1. Customer loss, 2. Perceived value loss.

Penetration pricing: It is also setting the price low to maximise the market share. After gaining market share it drives out the competitors out of the marketplace, so the company can eventually increase prices by being the pricd leader. Then the seller can drive down its manufacturing costs due to very large production and/or purchasing volumes.

Advantage: 1. Reduce competition, 2. Market dominance.

Disadvantage: 1. Customer loss, 2. Perceived value loss. 3. Don't works in terms of brand preference.

Premium pricing: Here the price is set higher than the market price, in the expectation that customers will purchase it from the perception that it must have unusually high quality.

Sometimes, the product quality is not good, still it works well due to high marketing and customers' perception.

Mainly it works for luxurious goods.

Here the product use to be patented and normally there are no substitute product of it.

Advantage: 1. Entry barriers, 2. High margin.

Disadvantage: 1. High unit cost, 2. High branding cost. 3. Competition