Question

When pricing products or services, all costs must be accounted for. This list would include VC and FC. I've seen government project bids badly priced (VC + markup rather than total costs + markup). Ultimately, as stated, consumers will not pay above what they can pay another supplier for the same product. Here we have a few things to consider: reduce costs to remain competitive, and/or differentiate our product.

Please answer thoroughly, so I can understand the thinking process. Thank you again!

Answer 1

Answer)

Here,in general government projects have very minimum comforts. For example, there are some building that are built by the government for giving accommodation for lower class. Here, all they provide is a decent accommodation to live and hence they reduce costs to remain competitive. But when it come to private companies they offer many comforts like generator services, playground,mini theatre,gym etc which completely different from what government offered or say just a residence and hence, they can demand more from their consumers.

From above example we can understand that cost leadership stretagy is used to attract price sensitive consumer and differentiation strategy is used to attract the consumer who is not price sensitive but want some uniqueness in the product he buys.