Cost based pricing - part 2

In this lesson

1. 0:00 Full cost plus pricing explained
2. 0:46 Why full cost pricing fails with elastic demand
3. 2:30 Full cost pricing with Activity-Based Costing systems
4. 4:54 Marginal cost plus pricing fundamentals
5. 6:15 When marginal cost pricing works short term
6. 7:20 Long term limitations of marginal cost pricing
7. 8:07 Price sensitivity and customer retention risks

About this lesson

These are core pricing strategies you'll encounter in Performance Management and Advanced Performance Management, and understanding their strengths and limitations is essential for exam success. You'll work through practical examples that show why full cost plus pricing isn't suitable when demand is price-sensitive, but works well with accurate costing systems like Activity-Based Costing. You'll also explore marginal cost plus pricing—setting prices based on variable costs alone—and discover why it's useful for short-term decisions when you have spare capacity, but risky for long-term profitability since it doesn't cover fixed costs. The lesson clarifies common misconceptions: full cost plus pricing is actually straightforward to operate, while marginal cost plus pricing can help you gain incremental profits but may cause customer loss if competitors offer better prices. By the end, you'll confidently identify which pricing method applies to different business scenarios and understand the external and internal factors that make each approach work or fail.

Duration: 10m