Question

Please identify what types of companies would use market based pricing versus what type of companies would use cost based pricing and why.

Answer 1

Market based pricing means price of product set based on market environment such as demand of product, price of competitors.

When company face high level of competition, then company should use market based pricing

Cost-based pricing means price of product set based on cost of product and mark up on cost.

When product of company is differentiate from product of competitor, and customer ready to pay additional amount for additional product value. Under this method, cost of product is more focus rather than selling price of product of competitors

Why?

Under market based pricing, customer cannot pay extra price if product of your company and product of competitors is same in product value. So price decided by market rather than cost of product.

Under cost based pricing, product of your competitors is different compare to your product. And customer ready to pay extra amount for additional product value such as high quality product.