Question

In a detailed presentation (12 to 15 slides in length, plus speaker notes and an addendum), explain and defend your costing strategies (i.e., the business plan created in your first and second milestones) and share your business’s performance to-date (i.e., the work from your third milestone). Be sure to effectively communicate to your stakeholders by breaking down concepts and using investor-friendly language to build their trust and confidence.

Answer 1

Costing Strategy

The term costing strategy refers to the pricing plan which the company follows to preapare the prices of its products in market portflio

While setting a pricing policy we need to consider the following process

1. Selecting the pricing objective

2. Determining the demand for the products

3. Estimating the costs

4. Analysing the competitors cost, prices and offers

5. Select a pricing method

6. Developping the final price

Here are some pricing plans which the companies follow to value its products

1. Pricing at premium

2. Pricing for market penetration

3. Bundled pricing

4. Price skimming

5. Economy pricing

6. Pentration pricing

After developing the price we need to conduct price reaction program for customers

1. Whether they have satisfied or not

2. Whether the competitor has cut the price based on our price

3. Whether there will be any influences on our sales based on this price

Then after conducting this pricing analysis then calculate the break even point and break even sales

Lets discuss the pricing policies

Penetration pricing:

1. Price set to penetrate the market

2. Low price to sell high volumes

3. Suitable for new markets and products with long anticipated life cycles

Contribution costing:

1. Contribution = Selling price - Variable cost

2. Price set to ensure coverage of variable costs similarly known as marginal cost pricing

Price skimming:

1. High price, Low volume

2. Skim the profit from the market

3. Suitable for short life cycle products or which having demand in future Ex: Jewellery

Value pricing:

Pricing based on the customer perception about the value of our product or service

Psycological pricing:

1. Used to play with consumer perceptions

2. Linked with value pricing of goods and high value goods to be priced according to what consumers think of us

Cost plus pricing:

Calculation of avergae cost plus mark up

Average cost: Total cost/Output

Competitor Pricing (Going Rate) :

In case of a competitor pricing, rivals have difficulty in competing on price – too high and they lose market share, too low and the price leader would match price and force smaller rival out of market •

In this strategy, we are compelled to follow pricing leads of rivals especially where those rivals have a clear dominance of market share

Where competition is limited, ‘going rate’ pricing may be applicable – banks, petrol, supermarkets, electrical goods find very similar prices in all outlets.

Destroyer/Predatory Pricing :

Deliberate price cutting or offer of ‘free gifts/products’ to force rivals (normally smaller and weaker) out of business or prevent new entrants.

Anti-competitive and illegal if it can be proved. Microsoft – have been accused of predatory pricing strategies in offering ‘free’ software as part of their operating system – Internet Explorer and Windows Media Player - forcing competitors like Netscape and Real Player out of the market

Market segmentation is to be done and to be served and priced accordingly