Cost-oriented Pricing

Abstract

Although in practice, there are many ways of arriving at a price, these can be reduced for simplicity to two basic methods namely, cost-oriented and demand-oriented price determination. Cost-oriented pricing is typical in the real world. Accounting systems can estimate or accumulate the costs of doing particular tasks and profit – and – loss statements show very clearly that all costs should be covered. Costs provide a floor which prices cannot go (for long anywhere) and it is only logical that prices should be built on seemingly precise cost data. Cost-oriented pricing is not as simple or full-proof as it might seem at first glance. The analytical tools presented can improve cost-oriented pricing but management judgment is still required. Price determination is a serious matter that deserves careful study. The discussion shall begin by examining how most firms, including retailers and wholesalers set oriented prices.