Question

Read the situation below and answer the questions given:

Dell is trying to promote its range of laptops to Ahmad. The main objective of Dell is to produce low price and profitable PCs for the customers. Dell products are so customisable, the price is largely dependent on the options and services added to the product. That means, the more features Ahmad wants for his laptop, the more he will have to pay.

Based on the marketing situation above, answer the following questions:

1. Is this company using Value-Based Pricing or Cost-Based Pricing? Explain how you made the distinction.

                   

2. Describe the major differences between Value-Based Pricing and Cost-Based Pricing.

           

Answer 1

Answer) Dell is using Cost- Based pricing. We should first know what is cost based and value based prcing. Cost based pricing is when the company takes all of the cost into account and adds their profit margin to it and selld the Product. Value based pricing is when Companies charge customers on basis of their perception of the Product or service. They ignore costs and charge what customers think they are worth. Now I came to this distinction that Dell is using cost based pricing because there main objective is to sell low and profitable laptops and charge more on each customisation that means with each component added to laptop, the price of the laptop increases. Therefore we can say that they charge the customers with each cost of the component added their margin. If they used value based Pricing, they could simply roll out the whole laptop included with all the customisations ,having two or different variants and could charge anything they want. We should also consider the fact that value based pricing happens only when there is a new or Innovative product in the market which people have never seen and they are ready to pay anything but the laptop industry is very saturated and the companies cant have value pricing.

Answer) The major differences between value based pricing and cost based pricing is that in cost based pricing , company sees what is the cost of the product incurred to produce and distribute whereas in value based pricing, Company sees what value their product is providing.

In cost based pricing, they have a set range in which they can price. In value based Pricing, there is no range. Companies can charge anything which they think Customers will pay.

Example -companies in Fmcg , fashion, use cost based pricing.

Companies in pharma, software etc use value based Pricing.

It took some research to answer the questions If you can help me with a upvote I would really appreciate it