One of the biggest dilemmas faced by business owners is about setting prices of their products. There are many methods helping the business owner arrive at a price point. Traditional method of setting product price is cost plus or mark up pricing method. It is simple to understand and easy to compute – you purchase the product for X amount, add profit margin Y to it, and sell the product for Z (where Z is the sum of X and Y).
This pricing method has been dominating the product management space for centuries. It is still used as a regulation pricing method to be controlled by government authorities.
Problem with this method of pricing lies in its approach to market. It doesn’t consider the market place dynamics and also not the competition parity. It simply helps the small business owner realize a certain amount of profit from the sale of the product. Now a day, this method is not used so regularly by corporations, also known as marketing machines.