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Question
State two disadvantages of Cost plus pricing policy.
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Solution
- It is very often difficult to determine accurately the cost per unit due to common overheads and joint products. The method involves arbitrary allocation of costs in such cases.
- The method ignores the nature and level of demand. The resulting price may, therefore, be out of line with market conditions.
- It fails to reflect competition in the market.
- The mark-up on the cost of the product is not fixed but may change with changes in demand. In practice, the rule of thumb methods are used to determine the mark-up.
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RELATED QUESTIONS
Explain the below mentioned pricing strategy:
Penetrating pricing strategy
Introducing a product at low price and increasing the price once the brand succeeds is known as ______ pricing.
______ price refers to the high initial price charged when a new product is introduced in the market.
Setting a price below than that of the competition is called ______.
Selling price = Total cost per unit + Desired profit per unit is the formula to fix prices under which Pricing Strategy?
“Parity pricing is not relevant under the present marketing conditions.” Justify either for or against by giving two reasons.
“In a competitive market, parity pricing is the appropriate strategy.” Justify either for or against.
What is penetrating pricing?
Identify two desirable conditions under penetrating pricing.
Discuss the pros of Penetrating Pricing Policy.
