Bm350 Cowgirl Chocolates

332 Words2 Pages
1. The suggested retail price and wholesale prices of Cowgirl Chocolates products are displayed in exhibit 2 along with the product and packaging cost. Based on this information, discuss the relative merits of using a cost-based, demand-based, and competition-based pricing method. Using cost based pricing does not take into consideration the market status or the supply/demand. It is strictly based on the production cost. The benefit of cost based pricing is that it is simple. You simply take your cost and add a percentage, or mark up to your product. Also if cost increase it is easy to adjust pricing. However, this can also have a negative effect, because as cost increase so must the price to maintain the same profit margin. In demand based pricing, a manufacturer estimates the maximum price they believe a customer is willing to pay. Then thy subtract a mark up to provide for the selling expense and profit. From that number they determine the maximum amount they can spend to produce the product. In demand based pricing, the more people want a product, the more that product will cost. However, product price is sensitive to you customers budget. If your customers can’t afford it, they will not buy it. In demand based pricing, it is possible that you may lose money because you don’t cover all your cost. Also if demand is low, you will have a small profit margin. On the other and, if you can find a market that has little to no competition, profits are all but assured. Finally, in competition based pricing your goal is to make your price comparable to your competitors. However if you focus too much on your competitors’ prices, you may lose focus of your own production cost. In competition based pricing it is easy for your competitors to match whatever prices you may set. The biggest advantage to competition based pricing I that you are in tune with

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