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Pricing Methodology

The Pricing Methodology

Each company seeks to maximize its income while determining the market value of a new product. In this article, we described how to do it right in detail. You will learn the six basic methods of pricing. Each pricing approach has its own characteristics, advantages, and disadvantages. Each described method for calculating the optimum rate is used in practice, but an ideal one for you depends on the principles of process management in your company. When using cost-oriented pricing methods, a company takes the current cost of a product as its starting point and depending on the product’s value sets the selling price. Such methods are suitable for companies that are not likely to affect the cost of goods, for example, those with a well-established product cycle when they cannot reduce costs.

The market-oriented pricing, on the contrary, takes the impact of market factors on the value of the product as a basis: the perception of consumers, formed patterns of behavior, the demand curve, and the competitive environment of the market. The starting point for calculating the value of the goods is the ideal price of the product that provides the maximum amount of sales and profits. And knowing the target value of the goods, the company aims to reduce costs and get the desired level of cost. Let us consider in detail each method of pricing with ready-made formulas for calculating and methodical recommendations.