A Cost-based pricing is a form of pricing whereby the price of goods and services is set depending on the price of production and distribution as well as the price at which the product is sold. In this type of pricing, an institution makes up for its risks and efforts through adding a fair percentage as profit ( Hinterhuber, 2008). For instance, some companies sell their products at a lower pricing since they use their own rate for pricing. Other companies sell their products at a higher price since they use high rates for pricing with an aim of obtaining large profits. This type of pricing is the simplest way of pricing since it involves setting a standard price margin that is added to the price of a product. With this type of pricing, the business is always sure of making profits provided that the pricing margin figure is adequate and sales are up to the expectations. However, prices obtained from this method differ from the market price in that the price may be too high attracting few clients or the prices may be too low denying the company profits it would have obtained if it used market pricing because may be clients would have paid for the products comfortably. Again, a business using this type of pricing does not control the cost of its products. It provides clients with its own prices.
A Market-based pricing is the best pricing method. It is defined as a method of pricing set by an institution in conformity to the prices offered in the market by other institutions dealing with same goods and services. To price the products, an organization analyses the market prices for similar products. In the case where a competitor has the same products but with fewer features, the institution may decide to price the product the same as the competitors or somewhat higher. Market-based pricing depends on the demand for the product. For instance, if the demand for a certain product is high, then the market price is high and if the demand is low, the price is also low. For example, a new electronic gadget in the market has a higher demand. Most people buy it without considering the price, with time almost everyone owns that kind of electronic gadget and the market price drops.
Delegate your assignment to our experts and they will do the rest.
The objective of any state contract is to acquire goods and services that satisfy the needs of the agency in an efficient manner and at a cost that is affordable. For the assurance of selection of the best product and a fair competition, governmental agencies should abide by the process of acquisition that is administered by Federal Acquisition Regulation (FAR) . A fair reasonable price is a price that satisfies both parties involved in a transaction ( Kathuria, 2009). The price is negotiated in terms of contract performance and the pledged quality. A fair and reasonable pricing in government contract acquisition depends on both legal and regulatory restraint.
Determinations for a fair and reasonable price are employed in the evaluation of bids, quotations, and proposals for the purpose of negotiations and decision making for sole-source. The United States government approach is to agree on contracts for goods and services at reasonable cost. Clients at private institutions buy goods and services at a fair and reasonable cost benefiting the state procurement. The main objective of the determination of fair and reasonable cost for government contracts is to build up an efficient and healthy competing sourcing atmosphere. According to O’Connell (2012), the government uses "The Federal Acquisition Streamlining Act" (FASA) to determine the reasonability and fairness of price since it provides the pricing information.
References
Hinterhuber, A. (2008). Customer value-based pricing strategies: why companies resist. Journal of business strategy , 29 (4), 41-50.
Kathuria, S. (2009). Best practices for compliance with the new government contractor compliance and ethics rules under the federal acquisition regulation. Public Contract Law Journal , 803-856.
O’Connell, M. (2012). Federal Acquisition Streamlining Act (1994). Federal News Radio .
