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The students pursuing MBA (Retail Management) must know about pricing strategy--Part--1

How to get a good pricing strategy effected in any retail chain?

The company name XYZ is a proxy name of a world renowned retail chain. The facts, which a student of Retail chain Management should go through for the comprehensive idea about managing the competitive market of retailing, are as below (in brief).

Good pricing strategy is a good aspect which in turn helps the company to earn good profit margin on the goods or service which it produce. Companies spent a huge amount of money in deriving efficient pricing strategies which are very important.

Below is the list of different pricing strategies which are followed by different organizations to attract customer and also to earn profit simultaneously.

Pls find the formula which is used by the organization in order to calculate the price:

Cost Based Pricing:

The first type is the cost based pricing. In this type of pricing first the fixed and the variable cost of the product or the service is estimated and once the total cost is calculated profit margin is added to each unit of the product or service.i.e it could be 5%,7% or 9%. This is termed as a efficient strategy as it includes all the necessary costs related to the product or service, the main point is the expected profit is also covered in this pricing.

Absorption costing principles:

This is another costing technique which is widely used is absorption costing. Here the cost which is incurred by the business in production of goods or services they offer is allocated to each of its product or service. By this technique the management will be able to determine whether they could achieve the profit or not. Assumptions are also made in the process of cost allocation as few are fixed and few may be variable depending on the intensity of production.

Profit determination when absorption costing is used directly depends on the level of production as the manufacturing overhead is wrapped up in the value of work in progress goods and also the finished products. If incase at the end of every accounting period the goods are not sold then the fixed manufacturing overhead cost is being transferred to the later period.

Marginal costing principles:

Another significant cost is marginal costing. In this costing, initially two elements of cost are separated i.e the fixed and the variable cost. Variable cost is a cost in which the cost incurred for production is same and the total cost differs depending on the quantity of the output. Where as in fixed cost the total cost remains same irrespective of the amount of production. Separating fixed and the variable cost is not an easy task however organization tries to simplify the information to do this but in not all the cases the values are accurate. This costing strategy may help the organizations to perform some activities such as decision making and short term planning.

We have listed few of the costing systems right now but there are also other aspects of costing systems which are gaining huge importance and popularity these days in the business organizations.

 

Continued to Part--2

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