Pricing principle and reasonable price difference

Pricing Principle and Fair Differential Pricing

The pricing policies form an important component of the marketing mix which helps to maximize the profitability of a business. Prices are set with the objective of generating desired levels of sales, profits and market share. In setting prices for firms, the pricing principle and fair differential pricing should be taken into consideration.

The Pricing Principle

There are numerous principles involved in setting prices for goods and services, but the most important ones include cost-plus pricing, value-based pricing and positioning. With cost-plus pricing, firms charge a price that covers their cost and provides a desired return on their investment. Cost-plus pricing is sometimes referred to as keystone pricing, which involves setting a price that is double the cost. Another pricing principle is value-based pricing, which involves charging a price based on the perceived value of the product or service in the eyes of the consumer. The last pricing principle that companies should consider is positioning, which involves setting prices in order to differentiate the product from competing offerings in the marketplace.

Fair Differential Pricing

Fair differential or market segmentation pricing involves setting different prices for different customers based on factors such as location, quantity, type of customer and other criteria. Differential pricing is generally beneficial for organizations as it allows them to capture more revenue from those customers who have a higher willingness to pay for the product or service. Differential pricing also helps to segment the market based on the price sensitivity of customers, which can be advantageous for targeting promotions and sales efforts.

Conclusion

Pricing is an important part of a companys marketing mix and should be taken seriously. Companies should consider the pricing principle as well as fair differential pricing when setting prices for products and services. By taking into account all of these factors, companies can ensure they are setting the optimal price for their offering.

The cost principle, sometimes called principle of full disclosure, is a general rule of accounting. The notion of the cost principle states that all assets acquired and expenses that occur should be recorded at the cost to the company at the time of the acquisition or expense. The cost principle is concerned with recording items in the financial statements at the values at which they were originally acquired.

The cost principle is important because it shows the original cost of an asset or the cost of an expense to the company. This helps to provide transparency to the financial statements and the items recorded to make sure that they are not inaccurately represented or manipulated. By using the cost principle, businesses are able to keep accurate records of the original costs of assets and expensed items, and any subsequent changes to those costs.

The cost principle also applies to valuing assets for disposal. If a company has assets it is going to dispose of, some of which have been held for a long time or have been depreciated over a period of time, the cost principle states that the asset should be recorded as the amount it would cost to replace the asset with a similar one. This allows for the accurate recording of any changes to the assets value from its original purchase.

The cost principle is based on the idea of assuming fair value. That is to say, the price a company pays for something and the price it sells that same thing should be brought to the ledger. If a company sells an asset or item for more than it was purchased it is considered to be a reasonable variance and should be recorded accordingly.

The cost principle provides a benchmark for recording changes in the price of an asset or the cost of an expense and serves to provide transparency and accuracy in financial statements. Companies are able to report information accurately and in compliance with generally accepted accounting principles when they follow the cost principle. This helps ensure that financial statements are accurate and have a reliable basis for comparison against similar companies.