VALUATION PRINCIPLE

Valuation Principle

Valuation Principle

Market-Based Pricing

Market-based charge emphasizes cost as a variable element of the trading mix. Its concern is how it can sway the company's position in the marketplace. Value is encompassed in this notion of price, and the underlying marketing topic is to set prices at 'what the market will bear'.

Profit maximization is natural in trading, but it is not feasible to do this on all products/services amidst all customer assemblys. Companies can employ many charge methods that might encourage sales yet decrease margins in the short term. The general target might be profit maximization, but the company's merchandise blend should be analyzed in periods of individual items, and cost methods applied individually, rather than singular charge decisions applying to the entire range. Prices should take up a clientele aim, and this will determine if the merchandise is acquired or not.

The major market-based charge techniques are recounted below.

Penetration pricing

Penetration charge engages setting charges at a sufficiently low level to make them attractive to the mass market. The aim is to accomplish high initial sales, which are sustained throughout the life cycle of the product. An associated aim is to discourage competitors. Penetration charge is particularly befitting for products where unit cost decreases can be achieved through primary mass production.

Setting-up charges are generally high and initial development charges are retrieved over a long period. The task of trading is to double-check that customers retain interest during the life of the product.

Skimming

Askimming approach adopts a high-price scheme, charging what the market will bear. The aim is to 'skim the cream off the market'. This principle is especially appealing to a company with a new and unique product. When the elite has been skimmed, charges can be progressively decreased.

Perceived value pricing

Perceived worth charge determines charges from assumptions made about the convictions that ...