Question

When would companies generally employ cost-plus pricing?

What’s the dynamic between shorter/longer channels of distribution relative to pricing?

Answer 1

Companies can use cost-plus pricing in below cases:

• They have good pricing power in the industry and do not have pricing pressure from the competitors.
• Production costs are variable in nature and company intends to profit a certain percentage as per production costs.
• Company wants to maintain consistent profits.

2) Longer channels are useful when the value of product is low as these channels are low cost channels with less quality as compared to short channels.

Short channels are useful when the value of product is high as these channels involves high cost and higher quality.