Cost-based pricing strategies and their impact on companies’ profitabilit

Abstract

Cost-based pricing strategy is commonly used by many companies to decide the final price of their product or service rendered. However, whether this pricing strategy positively affects companies’ profitability is questionable. The study sought to assess how cost-based pricing affects companies’ profitability. Business documents and scientific literature were systematically reviewed to satisfy the objectives of the study. Additionally, five managers who actively used pricing strategies were interviewed via video conferencing to gain a better understanding of the subject. Pricing strategies were defined as the Pricing strategy is a critical element of marketing that involves defining how much a product or service should cost. Breakeven pricing, target pricing, life cycle pricing, marginal costing, skimming pricing, premium and psychological pricing were examples of cost-based pricing strategies identified. that cost-based pricing strategies affect companies’ profitability by providing cost information needed for products and service pricing decisions which help to ensure that companies remain competitive, make profits, and achieve targeted objectives. However, the findings also identified that the cost-based pricing strategy has the disadvantage of not considering customer demand and market competition, which can lead to pricing that is too high or too low for the market. Considering external market factors when implementing a cost-based pricing strategy is recommended to effectively maximize companies’ profitability.