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Cost-based and Competitive -based pricing Essay

Words: 665, Paragraphs: 18, Pages: 3

Paper type: Essay

When deciding which of the two methods will be more effective in our working field we took into consideration the advantages and disadvantages of the two methods. We have decided that the market in these days is too risky to use cost-based pricing for our product because it is hard to predict what is going to be the reaction of the purchasers and also we do not know how well the product is going to be sold. In case we fail to sell the predicted amount of our watches we will be forced to increase the price in order to save our company from bankruptcy .

To sum it all up there are too many disadvantages in the usage of cost-based pricing. On the other hand such is not the case of competitive based pricing where disadvantages are fewer and risks not so dangerous. We have decided that the only risk when choosing this path is that if we set a price slightly higher than the production cost and the rival brands keep their share of the market we are surely going to bankrupt. Also competitive-based pricing offers a wide variety of sub-methods which can lead to higher profits.

In this type of method we are closely observing the competition – the quality of their products, prices they set and their ability to survive in a continuous price war and the introduction of a rival brand. We are not going to use a method of high pricing in order to imply that our product is very unique because there are too many illustrious competitors and it is going to be close to impossible to take over even a small share of the market while offering prices as high as theirs.

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Our company is also against the policy of using ‘predatory pricing’. That is a very incompatible method for our brand of watches – it is illegal in some countries and is again very risky if the competition is able to respond to this method. We do not have enough finances to pull this off. We intend to take over a large share of the market not momentarily but slowly and steadily. We are also not intending to create a market niche for our product.

Our main goal is to offer a price slightly higher that our production cost and lower than competitor prices in order to make a small profit while establishing ourselves as a major watch brand. Conclusion: In conclusion, by considering all the information presented in the analysis and the specifics of the pricing we decided the usage of the competitor-orientated method for our product in order to obtain major share of the market. Of course, there are many advantages and disadvantages for choosing both the cost-based and the competitor-orientated method.

Having in mind that our product is widely used we considered that this pricing strategy will help us eliminate a great part of the competition and satisfy our customers’ needs and wants, which are our aims. This pricing method will be in assistance for the fast penetration of our product on the market and in the field of business relationships. We run the calculated risk of bankruptcy if there are not enough sales and if customers are not convinced in the quality of our product. Otherwise, we will have the opportunity to approve on the market with a great brand name and a good company position.

Bibliography

Sources used:

1. Blythe, J. (2001). Essentials of Marketing (2nd ed.). FT: Prentice Hall.

2. Kotler and Armstrong. (2001). Principles of Marketing (9th ed.). Prentice hall.

3. Jobber, D. (2001). Principles & Practice of Marketing (3rd ed.). McGraw-Hill Company.

4. Mercer, D. (1992). Marketing. Blackwell Publishers.

5. Baked, M. (1994). The Marketing Book (3rd ed.). Butterworth Heinemann.

6. Etzel, M. (2004). Marketing (12th ed.). Mcgraw-Hill/ David Brake.

7. Oliver, G.(1995). Marketing Today (4th ed.). Prentice Hall.

8. Blagoev, V. (2003). Marketing (2nd ed.).

9. The Product Life Cycle. (2008). Retrieved October 14, 2008, from

http://www.quickmba.com/marketing/product/lifecycle/

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