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Pricing Orientation

Companies mainly follow two different types of pricing orientation:
•    The cost approach, and
•    The market approach.

The cost approach involves firstly computing all relevant cost and then adding a desired profit mark up to arrive at the price. The cost approach is popular because it is simple to comprehend and use and leads to fairly stable prices.

Under the market approach pricing stats in a reverse fashion. First an estimate is made of the acceptable price in the target segment. An analysis is performed to determine if this price would meet the company’s profit objectives. The market approach focuses on pricing from the viewpoint of the customer. Unfortunately in many countries it may not be easy to develop an adequate price demand relationship and therefore implementation of the market approach may occur in vacuum. It is this kind uncertainty that forces marketers to force for the cost approach.

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