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Question
| Mittal Industries is into manufacturing of television sets. The company decided to introduce a new range of smart television sets which can use any mobile phone as remote control. The finance department along with the R&D department brainstormed to arrive at an optimal price for the television sets. They decided that the price be fixed based on a manufacturing estimate. |
Enlist the advantages of fixing price in this manner.
Solution
Advantages of cost plus pricing
- Biggest advantage of this is that company knows exactly the amount of expenditure that has incurred on making a product and therefore they can add profit margin accordingly which helps in achieving the desired revenue for a firm.
- It is the simplest method to decide the price for a product because one has just to add up all the cost and then add profit which you want to earn which will give the price for a product.
- Since the company is using its own data for deciding cost which makes it easier for a company to evaluate the reasons for escalations in expenses and therefore it can take corrective action immediately.
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RELATED QUESTIONS
Explain the disadvantages of skimming price method?
What is penetration pricing method?
Enlist its advantages and disadvantages?
Explain in detail any three pricing strategies.
‘Polymer Ltd’ decided to diversify into manufacturing pipes and plastic household products apart from their water tanks business. Their finance and marketing department decided to adopt any of the two pricing strategies -
- adding a certain percentage of profit to the cost of production
- selling at a lesser amount so as to capture a huge market. They put forward their funding strategy to the CEO.
The suggested pricing strategies are:
- Cost-plus pricing
- Skimming pricing
- Penetration pricing
- Competitive pricing
Mayank, a small entrepreneur, is manufacturing LED lamps with the brand name 'Led-amps`". These lamps are in great demand. He finds that the cost of production per unit of the lamp is ₹ 800 and he can sell the same at ₹ 1000 per lamp. The competitors in the market are selling this type of lamp at the rate of 1200. Mayank's objective is not to earn profit in the short-run but to capture the largest market share. His expectation is that the customers will be attracted towards the new brand because of the lower price.
Identify the method of pricing adopted by Mayank to capture the substantial portion of the market.
