Outline the different bases for setting price. Discuss the advantages of each and the circumstances where each might be most usefully applied.
Prices are set based on the product and its' circumstances. If it is a commodity, the market sets the price. A company must price in line with what others are doing to gain sales. Or perhaps it is a specialty item, so the company has high costs and needs only to sell a small number of items. This is called skimming the market. This might be effective if the product is new and unique to the market, so it doesn't face competition to drive down the price. Often, this pricing model is used during a product introduction of a unique item, and then as competitors enter the market prices are forced down. The advantage to this pricing model is the ability to make larger margins initially and recoup more of one's investment costs, often due to new product research and development.
A loss leader is an item that a company uses to gain other sales, for instance, when a snack company ...
The solution outlines the difference bases for setting price, discussing advantages and circumstances in which each might be best utilized.