The consumer lacks consideration, but the cost of production is considered. It is favorable for goods sold to highly sophisticated customers. (Hilstrich 2000 page 12).
The benefits of value-based pricing are the ability to set prices that are likely to attract buyers because of the market consideration. The major challenge for this approach is the extensive need of advertisement to sell the brand name to customers for them to accept its benefits. The profit margin is also extremely low, and it is not easily accounted for entirely. It can also alienate some customers who purchase based on pricing. (Hilstrich 2000 page 24). Cost based pricing benefits ranges from the high profit margins by goal setting by the company. The greatest drawback is the high pricing that may exceed the consumer threshold, which leads to a struggle in the generation of enough volumes for the market. It also ignores the image of the product to consumers and thus lower profit per sale than would otherwise be realized.
The IKEA Company uses the value based pricing strategy in the pricing of its products. This is the best pricing strategy that the company uses to provide the home products to its customers. A nonprofit oriented company provides the goods to the market at somehow consumer friendly prices. The company also enjoys a large market and is being exempted from taxation due to consumer consideration during pricing. During the company’s establishment, they used the penetrating pricing strategy by offering lower prices for their products in order to attract the market. This approach made them accrue a larger market around the world. Their production costs were also low because they used the prisoners as their source of labor. With time, they gained momentum in business but continued offering their products at lower prices. They were exempted from taxation due to this undertaking. They did not mostly use the skimming approach though they were a significant competitor in the market. To attract other companies into the market, they used the skimming approach, which later lowers the prices due to increased supply in the market. The company’s aim is to provide the household products to the market at lower prices. They are exempted from taxation and the profits accrued are shared to the owner at a constant rate. Economic recession forces it to increase the prices as well as the other competitors increase their prices. The economy approach also gets used because the costs of marketing and product promotion are low. The price notations at different times of the year by using offers are common in the company. The power pricing consideration shows that the company determines its prices in relation to the price elasticity of demand. Therefore, an increase in the prices of its products does not decrease the demand of its products. The increase in prices is so low and thus it has a little effect on the demand. Question 2 – on distribution Hilstrich, 2000 states that vertical marketing is a form of distribution from the producer to the wholesaler, then to the retailer and to the consumer with the aim of targeting a given industrial niche. This is carried out by related businesses that take part in the provision of a given specialized needs. Horizontal marketing is a form of distribution channel whereby many organizations, which are at the same level, join for capitalizing on