Cost-Based Pricing: Formulas, Advantages, Features

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What are we talking about? The cost-based pricing method is used to set a price based on the costs of manufacturing a product and the costs of selling it. It was popular due to its simplicity in calculations during the Soviet era, but is still relevant today.

What to pay attention to? The cost-based pricing method can hardly be called universal. During calculations, market fluctuations, the product life cycle, and the reaction of buyers to all this, which today plays a key role in sales, are not taken into account.



In this article:

The essence and azerbaijan email list objectives of pricing
Cost-Based Pricing
Types of cost-based pricing methods
Active and passive pricing within the cost method
Cost-based pricing method in public procurement
Risks of Cost-Based Pricing
Alternatives to Cost-Based Pricing
Pricing Strategies
Frequently Asked Questions about Cost Based Pricing

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The essence and objectives of pricing
Cost is a key element of the marketing mix. Incorrect pricing can lead to losses and business closure. If the cost is too high, customers will not buy the product. And if it is too low, it will not cover the company's costs. Pricing methods help determine the optimal cost of a particular product.

The essence and objectives of pricing

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The pricing method is chosen for each item or group of goods, focusing on the tasks that the company solves with the help of a specific product. For example, a bakery can set a minimum price for bread to increase sales and attract new customers, and a high price for sweet buns, ensuring the main profit.

Let's consider possible pricing tasks:

Survival . In conditions of intense competition and unpredictable demand, it is necessary to guarantee the existence of the company. Profit fades into the background. The business aims to set a price that will cover production costs.

Maximizing Current Profits : It is important to determine the optimal relationship between demand and product cost so that the company receives maximum benefit.

Increase in sales volumes . Pricing is aimed at increasing sales turnover. This approach is used in the case of seasonal goods or products with a limited shelf life. Lower prices lead to increased demand, which contributes to sales growth.

Fighting rivals . Competition between companies encourages the use of various methods, such as discounts, other privileges and dumping, in order to force others out of the market, even if this leads to temporary losses.

The underlying pricing objective may change over time, even for the same product. For example, when launching a new cookie, a company may set its price below that of its competitors to attract new customers. Once the product has gained customer confidence, the company may raise its price to maximize profits.

The essence and objectives of pricing