The model of cost-based pricing - Prices and pricing

Cost-effective pricing model

Those of the United States firms that are leading in the process of market transformation have already passed the stage of a return to cost pricing and, moving further, began to gradually master the marketing approaches to this task. Such a reform of pricing methods is not easy, as it faces the problem of the lack of staff with new approaches and the unwillingness of existing old-school specialists in the state to master these approaches. In the latter case, firms simply have to dismiss such employees and look for specialists with a different attitude to the problem.

In this way, according to the director of the St. Petersburg plant of turbine blades (ZTL) V. Chernyshev, the events at this enterprise developed: "I also had economists,

which I exterminated. They come and say that the kilogram of the template (which they had such was the unit price of the scapula) should cost like a diamond. I say that it can not be, and they nod to costs ... But the production should cost as much as it should cost. "

Today, for the vast majority of domestic firms, the task of mastering cost-effective pricing methods in combination with strict management of these costs is still quite urgent. And here it is quite possible for domestic economists to take advantage of the experience of foreign companies, in the practice of which costly pricing is still used quite widely.

At first glance, for countries with developed market mechanisms such a situation is surprising. After all, from the point of view of modern economic theory, a costly approach to justifying prices is completely unacceptable, since:

- does not ensure that the conditions for the formation of demand and the economic value of the goods are taken into account (the price is determined on the basis of a given volume of sales, although this volume depends on the price by the law of demand itself);

- relies on accounting, rather than economic (full) costs;

- uses as a basis for determining prices average variables, rather than marginal costs.

And if despite this costly pricing continues to be used, then, apparently, there are good reasons for that. Consider the main ones.

1. Cost-based pricing relies on real data. All the information necessary for pricing by this method can be obtained within the firm itself on the basis of accounting reports and documents regulating the amount of margins. No market research or customer surveys are needed. Therefore, decisions about prices can be made quickly enough.

2. Not always in the firm there are specialists and managers who own better methods of pricing. Modern approaches to the justification of prices (some of which are discussed above) combine both scientific elements and creativity. Many firms (including the overwhelming majority of United States companies) simply do not have specialists of this type and managers who speak to them in one language. But any manager understands that

Krasnov V. From marketing, as from fate, - not to leave/V. Krasnov, A. Makarov, A. Privalov // Expert. 1996. No. 24.

such costs, and that the price should be greater than the costs by the amount of "acceptable profit."

3. Cost-based pricing can be generally accepted in the industry. If the situation is such, then the managers of the firms operating in it do not consider it necessary to master other approaches to the justification of prices, knowing that market leaders also come from costs and mark-ups. This is characteristic so far and for most sectors of the United States economy. As for the prices of imported products, they are perceived as a reality, born of certain "world markets".

4. Cost-based pricing is often perceived by managers of firms as the most reasonable and fair. The formation of prices on the basis of costs is rooted in antiquity, so this is a tradition consecrated by centuries of commerce. Moreover, at the heart of costly pricing lies the idea, quite reasonable for everyday thinking, that "honest producer" should be able to recover their costs and receive a normal profit as a reward for their efforts. Therefore, using the cost-based method of pricing, company managers (especially directors of United States firms, which are known to have a predominantly technical background) perceive it as not just natural, but also much more protected than methods based on marketing ideas.

The basis for cost-based pricing is the formation of prices as a sum of three elements:

1) variable costs for the production of a unit of goods;

2) Average overhead costs;

3) Specific profit.

At first glance, this approach to justifying prices is extremely simple. However, there are a lot of pitfalls in it, and to avoid them, you need to use the methodology of cost-effective pricing quite skillfully.

The study of commercial practice shows that the most common methods of cost-effective pricing are:

- the determination of prices using the standards of profitability to costs. This method is used primarily by manufacturers of goods;

- the calculation of prices based on the normative value of the mark-up. This method is widely used in retail and in services;

- Pricing based on the target profitability of investments. Applies to initial pricing

on new products and services, especially with a small assortment or the ability to clearly distribute the assets used by the company between different products;

- determination of prices using trade discounts. In this way, prices are determined by the wholesale and retail trade organizations.

Now consider each of these methods in more detail.

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