EGGO WAFFLES

Eggo Waffles

Eggo Waffles

Role of Cost in Pricing / Cost-Based Pricing at Eggo Waffles

"It is widely noted that the cost information can play a key role in determining selling prices. For evaluation of price strategies and alternatives it is essential that cost be split in to fixed cost and variable cost. Here variable cost - cost which in the aggregate, tend to very to in direct proportion to changes in the volume of output or turnover. whereas fixed cost - cost which accrue in relation to the passage of time and which, within certain output or turnover or turnover limit, tend to be unaffected by fluctuations in volume of output of turnover (e.g. Rent, salary, executive salary). The split between variable and fixed cost should not be treated as rigid when evaluating alternative price and volume strategies, it may be that a low-price strategy involve high volume requires additional tooling where amortization is conventionally accounted as fixed.

Thus for decision analysis purpose the cost is incremental to the low price strategy and must be treated as variable in evaluating the alternative. If the low price strategy is requires further additional volume so that additional plan is required, it should be charged with the cost for additional capacity. Devin and Morton (2005) "A relatively high degree of importance attached to cost-plus pricing is noted, although there appears to be a substantial number of companies that use cost-plus pricing for a relatively small-set of products and services, companies confronted by high competition attach a relatively high degree of importance to cost-plus pricing (Theodosiou, 2010).

The simplicity of this method is that it require no other efforts beyond consulting the accounting or financial record of the firm. . Because of the simplicity of this method, retailers, wholesalers, and some manufacturers use it to determine the price. Adding together the variable and fixed cost and the profit per unit provides a selling price. Nothing could be simpler, expect that it is an inferior method of setting prices. Whereas coat-plus also has the following major disadvantages:

It ignore demand and market conditions

It ignores competitors and competitive considerations

It ignores factors such as target marketing and positioning It ignore potential substitutes.

As all organisations main aim is to make a profit with less cost, Thus product and sale manager "target prices" for consistency with market conditions. The advantage of cost-base pricing offered by marketing theory is that seller simplify their pricing task because cost are easier or determine than demand and cost are more certain . Drucker (2009), “Pricing as a strategic Capability"

Competition Based Pricing in Eggo Waffles

The second general approach used for price setting is with reference to competitors' prices and what competitors are charging forms the price basis as opposed to demand and cost. Braga, Michael, and Shopes (2003), maintain "The important step is to understand how well your product or services stakes up against competitive offerings. The starting point for this comparison is to understand the source of value your product or service provides customers

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