Cost based pricing, Marketing Management

Assignment Help:

Cost Based Pricing: Under the cost based pricing, different methods used are :-

  •   Mark Up Pricing
  •   Absorption Cost Pricing
  •   Target Rate of Return Pricing
  •   Marginal Cost Pricing

Mark Up Pricing : It refers to the pricing methods that involve the selling price of the  product is fixed by adding a margin to its cost price. The mark ups can vary depending on the nature of the product and the market. Generally, the higher the value of the product, the larger is the mark up. And if the slower the turnaround of the product, the higher is the mark up. Mark-up pricing proceeds on the supposition that demand cannot be known precisely, but costs are known.

Absorption Cost Pricing: ACP rests on the predictable unit cost of the product at the regular level of production and sales. The method  which is uses standard costing techniques and works out the variable and fixed costs involved in manufacturing, administering  and selling the product.  By adding the costs of three operations, we get the entire costs. The selling price of the product is arrived by adding the needed margin towards profit to such total costs. The major merit of this method is that as long as the market may absorb the production at the determined price, the firm is guaranteed of its profits without any risk and the major demerit is that the method simply suppose price to be a function of cost alone and this method becomes ineffective.

Target Rate of Return Pricing: this is similar to absorption cost pricing. The rate of return pricing is utilized in rational approach to arrive at the mark up. It is arrived in such a way in which ROI criteria of the firm are met in the procedure. But this process amounts to an improvement over absorption pricing since it uses a rational basis for arriving at the mark up. Secondly, since the rate of return on the funds employed is a function of mark up and also turnaround of capital employed, rate of return costing constantly reminds the firm that there are two routes for profits- first improvement in the capital turnover & second increase in the mark up. The main restriction of the method is that the rate of return is connected to the level of production & sales assumed.

Marginal Cost Pricing: It aims at maximizing the involvement towards the fixed costs. Marginal costs contain all the direct variable expenses of the product. These direct variable costs are fully realized in marginal cost pricing,. In addition to it, a portion of the fixed costs is also realized under competitive market conditions marginal cost pricing is more useful. Moreover,  when  a  firm  has  a  number  of  product  lines  marginal  cost pricing is helpful. This method is also useful in quoting for competitive tenders and in export marketing.

On the demerits side, marginal costing makes definite assumptions, regarding cost and revenue behaviors which can turn out to be wrong in some cases. Moreover, whereas marginal costing rests on a twofold classification of cost into fixed costs and variable costs, in reality there may be a third class of costs - The Semi variable costs.


Related Discussions:- Cost based pricing

Complexnumber, my sir is ask for project in clss 11th for final exam assing...

my sir is ask for project in clss 11th for final exam assingement project

Marketing in words of philip kotler, Define marketing in words of Philip Ko...

Define marketing in words of Philip Kotler. In the opinion of Philip Kotler, he explains that “Marketing is a social and managerial process by that individuals and groups acqui

Generic product marketing, Select a generic product. Define its customer se...

Select a generic product. Define its customer segmentation, marketing technique, customer service initiatives, and the approach used to marketing?

Explain about product positioning, Explain about product positioning? ...

Explain about product positioning? Product Positioning: This positioning is the act of designing company’s giving image so that they engage of meaningful and distinct co

Show the disadvantages of support media, Q. Show the Disadvantages of Suppo...

Q. Show the Disadvantages of Support media ? 1) Detailed message can't be given by support advertising as passerbies' view the signboards are only for few seconds. 2) Someti

Illustrates the intend of marketing for customers, Illustrates the intend o...

Illustrates the intend of marketing for customers . Communication of information regarding the products assists customer finds out whether the product satisfies their requiremen

Compute average stock, The following ratios have been compiled relating to ...

The following ratios have been compiled relating to Prince Corporation for the year ended 31st December 2009 together with comparative figures of the average industry. Addi

What is market segmentation, Question: (a) What is market segmentation?...

Question: (a) What is market segmentation? (b) "It is often said that each consumer is unique, with unique needs." How useful is then, market segmentation as a marketing t

Channel management in rural market, Channel management in rural market: ...

Channel management in rural market: In rural distribution we need relatively longer chain distribution involving multiple channels as we have widely scattered markets. Multi

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd