Question

1. Discuss factors that a company might look at when determining prices for its products.

2. What are the advantages and disadvantages of target pricing versus cost-based pricing?

3. Why might a company price goods below costs?

Answer 1

1.THE FACTORS THAT A COMPANY MIGHT LOOK WHEN DETERMINING THE PRICE :

• AT FIRST WHICH PRODUCT WE ARE GOING TO LAUNCH IN THE MARKET .
• WHETHER COMPETITORS ARE ALREADY THERE IN THE MARKET FOR THAT PRODUCT OR THIS PRODUCT IS NEW TO THE MARKET
• IS IT HAVE SOME ADVANTAGE TO THE CUSTOMERS FROM BUYING THE PRODUCT
• WHETHER IT HAS ANY COMPETITIVE CORE PART SO THAT WHICH WILL BENEFIT THE COMPANY A LOT GAIN IN THE MARKET.
• MAINLY REQUIREMENT OF THE PRODUCT IN THE MARKET I.E CHOICE OF BUYING THE DIFFERENT CUSTOMERS.
• EXTERNAL MARKET FACTORS AND OTHER FACTORS WHICH EFFECTS IN THE DETERMINING THE PRICE FOR THE PRODUCT.

2. ADVANTAGE & DISADVANTAGE OF TARGET BASED COSTING & COST BASED PRICING

• TARGET BASED COSTING
• IN WHICH THE TARGET WHICH REPRESENTS THE AMOUNT THAT COMPANY MUST EARN IN ORDER TO GET RID OVER THE COST I.E PROFIT
• BASICALLY IT SETS PRICE IN SUCH A WAY IT RECOVERS THE WHOLE COST INCURRED ON THE PRODUCT , AND WHATEVER WE ARE EARNING ON THE PRODUCT OVER AND ABOVE THE COST IS PROFIT.
• IT MAY NOT HELPFUL IN ALL BUSINESS ACTIVITIES.BUT COMPARATIVELY TARGET COSTING IS MUCH BETTER THAN THE COST BASED PRICING METHOD.

• COST BASED PRICING
• IN THAT GENERALLY THE WE TAKE OUT THE VARIABLE COST PER UNIT
• AND THE FIXED COST PER UNIT
• THEN WE WILL LEVY MARGIN ON THE COST OR ON THE SALES
• THEN SALES PRICES PER UNIT IS DETERMINED EASILY IN THIS METHOD
• IT MAY NOT ALSO SUITS TO ALL BUSINESS I.E ACCURATE WAY OF COSTING IT DOESNT SHOW.

3. IN GENERAL WHEN A NEW COMPANY WHICH ENTERS IN TO THE MARKET WANT TO TAKE ADVANTAGE IN THE MARKET BY ITS SELECTION OF PRICE WHICH IS BELOW THE COMPETITORS PRICE.

COMPANIES WHICH SELL THEIR PRODUCTS LOWER THAN COSTS IN ORDER TO GAIN COMPETITIVE ADVANTAGE OVER THE COMPETITORS IN THE MARKET, TO DRIVEN AWAY THE COMPETITORS OUT OF THE COMPETITION.

WHEN IT HAS INCOME IN ANY OTHER SECTORS THEN IT WILL USE HERE TO SET OFF THE LOSSES FROM THE BUSINESS.

EG . RELIANCE JIO WHICH PROVIDED THE DATA AND UNLIMITED CALL PACK AT LOWER COST THAN COMPETITORS , I.E CERTAINLY THROWNED SOME OF THE COMPETITORS AND PROVIDED THE MARKET ADVANTAGE SLOWLY BUT SHARPLY.

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