COST PLUS PRICING
- suited in business that sell products in large volumes; operate in markets dominated by price.
- Advantages:- simple 2 calculate; widely used and accepeted; justification 4 price increases; SP decisions can be taken by junior managment.
- Disadvantages:- ingnores relationship between price and demand; does not guarantee profit;no attempt 2 establish optimum price; diff absobtion methods are used, diff SP.
- charging high price when product is first launced in order 2 maximise short-term profitability.
- condition suitable:- product is new and diffand has little direct competition; product has a short life cycle; demand is uncertain; need high cash flow to increase liquidity.
- charging low prices when the product is launced, in order 2 get rapid acceptence.
- conditions suitable:- if the firm wishes 2 increase market price; dicourages competitors 4m entering in the market; demand is high elastic.
- selling complementary product, one at a low price (single purchase), low profit margin, another at higher profit margin (multile).
- ex:- printer and cartridges.
- selling a line of products which are related, in diff size, colour, quantities and price.
- make the staring line or cheaper products...then increase the price or the other products so that the cunsumer has 2 still buy them 2 ccomplete the set.
- quantity discounts and cummulatitive quantity discounts
- benefits 2 business:-increase customr's loyalty; attracting new customer; lower sales processing costs; clearance of stock.
- company sells the same product at diff prices at diff markets.
- condition:- seller must hav some defree of monopoly power; customers can be divided into diff markets.
- dangers:- black market may develope; competitors sell at lower prices.
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