EXAM 2 Essay Example | Topics and Well Written Essays - 1000 words

EXAM 2 - Essay Example Therefore, the value of a product is subjective to the buyer. Cost-based pricing on the other hand, entails setting the price of products based on the production cost, the cost of distributing the product, costs incurred in selling the product and the suitable rate on return expected by the company to cater for risks involved and the effort put in. It involves designing a great product, determining the cost of the product and then setting the price of the product based on the incurred costs. This method of pricing has the strength of enabling the company to harvest much profit by making greater sales due to smaller margins. It is, therefore, suitable for mass production. Just as value based pricing, it also has a weakness of not factoring in the relationship between demand and price and the consumer value (Ferrell, & Hartline, 2010). Currently, Microsoft Company is pricing its products and services using cost-based pricing method due to rising competition and serious downturn. Prices have been cut of various fronts to realize lower margins on products ranging from flagship Windows and Microsoft office products and services such as the newfangled internet. This is aimed at boosting the sales of the existing products as well as making quick headway with the new products. This has helped in minimizing piracy on the products and services. This method, therefore, does not consider break-even analysis in pricing since it is not value-driven but is rather, product-driven. However, it helps the company is coping with the rates of piracy by increasing sales in piracy regions such as China. Skimming is the introduction of a product or service at a high initial price by targeting the cream revenues in layers from the market. Penetration, however,is the setting up of prices of products and services initially at low values in order to penetrate the market easily and faster. The