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Price Discounts And Cost Plus Price Policy

Sales Promotion  Assignment / Homework Help
Survival becomes an objective more important than profit.

A firm's objective may be to try and achieve a status quo. This is when the company tries to have price stabilization thereby stopping price wars and maintain a stable profit level.

When a new product is launched the pricing objective can be
  • maximization of profit or

  • maximization of market share

In such cases skimmed pricing and penetration pricing strategies are often adopted.

If the objective of pricing is to attain leadership in quality then very often the price of the product is kept high as an indication of superior quality.

The objective can also be to maximize the number of units sold and thereby decrease the long-term costs.

Where the objective is to maximize the current revenue often profit margins are neglected. Prices are lowered with an intention of increasing the market share thereby achieving the objective of maximizing long-term profits.

Price Discounts

The price that is quoted to customers is known as the list price. This price is often discounted for the benefit of the distribution channel members or customers in general.

The different types of discounts offered are:

Quantity Discount

When a customer buys a product in bulk quantities he is offered a quantity discount.

Cumulative quantity Discount

Instead of purchasing in bulk a customer can buy large quantities over-time. Such customers are given a cumulative quantity discount. This discount increases with increase in the cumulative quantity.

Seasonal Discount

Discount is offered during a period when the sales drop, for instance off-season discount in air-fares. Long distance and wireless service providers may offer discounted rates for usage after midnight.

Cash Discount

A certain amount of money is deducted from the list price. Example, cash discount is often given to people who pay their bill much before a stipulated time.

Promotional Discount

In this form of discount a product is introduced at a price that is lower than the list price. This helps in boosting the sales of the product. Such discounts fall in the category of promotional discount.

Cost-plus Pricing Policy

In this pricing method price of the product is set at the production cost and a certain profit margin is added.

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