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Marketing Basics - Kotler Philip

Choosing a pricing method

Knowing the demand schedule, the estimated amount of costs and the prices of competitors , the company is ready to choose the price of its own goods. This price will be somewhere between too low, not providing profit, and too high, preventing the formation of demand. In fig. 63 summarizes three main considerations that guide pricing. The minimum possible price is determined by the cost of production, the maximum - by the presence of some unique advantages in the company's products. The prices of competitor goods and substitute products give an average level, which the company should adhere to when setting the price.

Firms solve the problem of pricing by choosing a pricing methodology that takes into account at least one of these three considerations. The company hopes that the chosen method will allow you to correctly calculate the specific price. We will consider the following pricing methods: “average costs plus profit”; break-even analysis and target profit margin; pricing based on the perceived value of the goods; pricing based on current price levels; pricing based on closed bidding.