Microsoft Word marketing doc

Cost-Plus pricing
This is the easiest and the most common method of price setting. Under 
it a standard mark up is added to the cost of a product to arrive at its price. 

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For example, a manufacturer of water filters, whose per unit cost of 
manufacturing is Rs.160/- adds 25% mark up and sets the price to the retailer at 
Rs.200/-. The retailer, in turn, may mark it up to sell at Rs.300/-, which is 50% 
mark up on cost or 33 1/3% mark up on the retail price. The retailers gross 
marking is Rs.100/-. Supposing that his store operating costs are Rs.50/- per 
water filter sold, his profit marking will be Rs.50/-. 
But, this method is not logical as it ignores current demand and 
competition and is not likely to lead to the optimum price. Still, mark up price 
is quite popular for these reasons. 
(i)
sellers have more certainty about costs than about demand and by 
tying the price to cost, they simplify their pricing task and need 
not frequently adjust price with changes in demand. 
(ii)
where all firms in the industry use this pricing method, their 
prices will be similar and price competition will be minimized, to 
the benefit of all of them 
(iii)
it is usually felt by many people that cost plus pricing is fairer to 
buyers as well as sellers. 
2. 
Perceived-Value Pricing
Many companies base their price on the products perceived value. They 
take buyers perception of value of a product, and not the sellers’ cost, as the key 
to pricing. 
For example, heavy advertising and promotion to enhance the value of a 
product in the minds of the buyers. Then they set a high price to capture the 
perceived value, as is done by the manufacturer of the Onida brand of TV set in 
India. The success of this pricing method depends on an accurate determination 
of the markets perception of the products’ value. 
3.