The Differences Between Value-Based Pricing & Cost-Based Pricing
by E.M. Rawes, Demand Media Google
Cost-based pricing is the more common pricing strategy.
Cost-based pricing is the more common pricing strategy.
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Businesses have methods by which to price their products and services. Two common methods are cost-based pricing and value-based pricing. When a company uses cost-based pricing, the company sets a price at a percentage above the cost it incurs to manufacture the product or to provide the service. Value-based pricing takes a different approach, considering the potential value the product or service will bring to its customers.
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Cost-Based Pricing
Cost-based pricing uses manufacturing or production costs as its basis for pricing. The cost-based pricing company uses its costs to find a price floor and a price ceiling. The floor and the ceiling are the minimum and maximum prices for a specific product or service; they serve as a price range. If the market conditions are such that the going competitive price is under the price floor, the company may price at the floor or attempt to lower its costs to lower the floor. But ideally, the company should price somewhere in between the floor and the ceiling, according to the McDonough School of Business. Many companies that produce in masses use this pricing strategy, such as companies that produce textiles, food products and building materials.
The Differences Between Value-Based Pricing & Cost-Based Pricingby E.M. Rawes, Demand Media GoogleCost-based pricing is the more common pricing strategy.Cost-based pricing is the more common pricing strategy.Related ArticlesValue-Based Pricing StrategyTarget Costing Vs. Cost-Plus in PricingMarket Adaptive Pricing Vs. Cost PlusWhat Is the Relationship Between Value Engineering & Target Costing?How to Find an IP Address and Port Number5 Different Types of Leadership StylesBusinesses have methods by which to price their products and services. Two common methods are cost-based pricing and value-based pricing. When a company uses cost-based pricing, the company sets a price at a percentage above the cost it incurs to manufacture the product or to provide the service. Value-based pricing takes a different approach, considering the potential value the product or service will bring to its customers.Ads by GoogleJob Costing SoftwareReal-Time Quotes for Tradies Accurate Estimates & Job Trackingwww.i-man.com.auCost-Based PricingCost-based pricing uses manufacturing or production costs as its basis for pricing. The cost-based pricing company uses its costs to find a price floor and a price ceiling. The floor and the ceiling are the minimum and maximum prices for a specific product or service; they serve as a price range. If the market conditions are such that the going competitive price is under the price floor, the company may price at the floor or attempt to lower its costs to lower the floor. But ideally, the company should price somewhere in between the floor and the ceiling, according to the McDonough School of Business. Many companies that produce in masses use this pricing strategy, such as companies that produce textiles, food products and building materials.
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