Cost-Based Pricing

I believe product prices ought to be based on the cost incurred. Cost-based pricing takes into consideration the recovery of both fixed and variable cost, and profit margin in the pricing of a product in the market (García-Díaz & Beltrán, 2014). Typically, the product or service production involves direct, indirect, fixed and variable costs which the producing company needs to compensate i.e. it makes sure incurred costs are recovered and consequently minimizing chances of losses. Additionally, for purposes of profitability, an element of profit margin is introduced to ensure the business entity operates profitably. In that scenario, the pricing strategy ensures profitable operations and as well as cushions unplanned and infeasible costs through the introduction of variable cost elements. The approach as well as optimizes the competition by only focusing on pricing products and services based on associated costs and not perception of value which could take advantage of the customers. Moreover, the approach optimizes the established rate of return and the prices could be revised based on organization adjustment on respective returns. The provision, as well as aids, counter completion

Importantly, the pricing approach is fair. A profit-making entity ought to optimize profits logically and not the manipulation of customers due to perceived value, demand, and supply. The approach as well as a logical perception of fairness with production cost and profit-margin incorporation being the key factors influencing prices introduced in the market (García-Díaz & Beltrán, 2014). It is also logical in that, products with low production costs will have lower prices as compared to prices with high production costs. The approach similarly has a logical strategy in the introduction of new and innovative products in the market. Collectively, the pricing strategy is easy to use, logical and fair.

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García-Díaz, C., & Beltrán, F. (2014). Cost-Based Congestion Pricing in Network Priority Models Using Axiomatic Cost Allocation Methods. Business Data Communications and Networking. doi: 10.4018/9781599042749.ch005

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