Market Adaptive Pricing -vs- Cost Plus
by Melanie Hammond
Manufacturers and retailers engage in multiple pricing strategies to determine the appropriate price for a product. Sellers often use market adaptive and cost-plus pricing. Market adaptive pricing is sensitive to fluctuations in the market price and encompasses three distinct pricing strategies: above-, at and below-market pricing. Cost-plus pricing does not take market factors into account and is based solely on the cost of producing the product.
Above-marketing pricing is the practice of setting the price of the product above what most customers are generally willing to pay for an item. This tactic is most commonly used for luxury items, where high prices are a selling point and customers take pride in buying something that is expensive. For example, Rolex watches are some of the most expensive watches that can be purchased, and Rolex deliberately sets prices higher than what most consumers would be willing to pay in an effort to limit the number of people who will enjoy the prestige of owning a Rolex watch.
At-market pricing is common among large mass-merchandisers, like Wal-Mart, Sears or JC Penney. Retailers who use at-market pricing establish the prices that consumers are willing to pay for national brands, such as Jiff peanut butter, and set their prices as close to market prices as possible. Retailers who engage in at-market pricing serve as a reference point for sellers that utilize above- and below-market pricing strategies.
Below-market pricing is a strategy used by generic companies and retailers with private brands in an effort to capture the sales of price-sensitive customers. Wal-Mart, for instance, not only sells national brand products, but also offers two private labels, Sam’s Choice and Equate. Equate body wash sells for considerably less than Dove body wash. Below-market pricing is also used by retailers such as Aldi’s, which sells only Aldi’s brand products.
Cost-plus pricing is the practice of adding a specified dollar amount or percentage to the seller’s production costs to determine the price that consumers will pay. This is particularly beneficial for products where production costs are difficult to estimate, such as products that require custom-built manufacturing equipment. This method of pricing is also widely used for products that require raw materials with unstable pricing, such as steel.
About the Author
Hammond earned a Bachelor of Science in Marketing, including concentrations in retail and promotions, from Southern Illinois University in December 2006, and a Master of Business Administration degree from Southern Illinois University in May 2009. Hammond was editor of Signal, a radio programming guide, and contributor to Previews, a television programming guide, both publications of WSIU Public Broadcasting.
IPP Adaptive Blend of Pricing
IPP uses an innovative pricing strategy which combines the outlined items above as detailed by the author.
Our goal is to provide our customers with the best possible price we can while still staying competitive and earning a modest profit. By leveraging this blended approach, we hope to continue to add value, while giving the shopper the experience and convenience they seek with an online retail shopping venue. We can not directly compete with the WalMart's or Amazon's of the net, but hopefully the products we've chosen to carry are not sitting in those marketplaces either. Innovative Products | Portal is not a bargain basement dollar store or a high-end shop; we're something in the middle. Know that we are working hard for you (our customers), to bring you value for your hard earned dollars.
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