Among the many objectives for those who sell products it is definitely important to use the best marketing tool possible so that they can establish a selling price. However there are many other ways to determine it. In terms of marketing, the most important decision is, in fact, in the search of the toolt itself.
Among the many methods for determining a sale price is that of the fixed margin on the cost, also called cost-plus. You need to take into consideration the value of the production cost of the asset when it is produced within the enterprise or, to the contrary, in the event that the good should be purchased from a third party: This is called MAKE OR BUY. Since these costs vary over time, it typically defines a standard cost that is usually set on the basis of a certain amount of production or purchase and based on the performance of commodity prices. Once established, the standard cost is added to a margin that is defined and fixed, so it remains unchanged for a long period of time. It is expressed as a percentage and is calculated by considering the objectives of profitability, competition prices and the elasticity of demand.
The method is simple in application, and, in periods where there is an inflation, this allows you to raise prices proportionally, with increasing costs. On the other hand, it offers the possibility to take into account neither competition nor the elasticity of demand. Another method is that of the variable margin. Unlike the first method, here, the margin applied can vary. In this way, in an industry where competition is high, you can take into account both the competition itself is the elasticity of demand. The application of this method implies the need to carry out, with a lot of frequency analysis on the demand on the market reactions and strategies of competition.
Another way is the definition of the price through trial and error. It is determined based on the performance of the application, through competition with other companies, and finally, through the elasticity of demand. They are, therefore, taking into account other factors; among these is the novelty of the product. After careful consideration of all the factors, you can change the price at any appreciable change in the factors. There is also the existence of a strategy for imitation. This choice will be usually very effective in markets where competition is almost nothing or quite poor. Price is determined by imitating that of competing companies that often, however, reveals an obvious choice. If in fact the leader of that industry decides to lower the price, as a result, also the other competitors would do the same thing in order to avoid to be out of the market.