Basing-point pricing
Basing-point pricing is a strategy used by companies to determine the price of their products based on the cost of a specific point of origin. This point of origin, known as the basing point, serves as a reference point for calculating transportation costs and other expenses associated with distributing the products to various locations.
For example, let’s say a company manufactures a product at a factory located in City A. The company sets City A as the basing point for pricing its products. When calculating the price of the product for customers in City B, the company factors in the transportation costs from City A to City B, along with any other relevant expenses. This allows the company to maintain consistent pricing across different locations, regardless of the actual production costs in each area.
One of the main advantages of basing-point pricing is its simplicity and ease of implementation. By using a single reference point for pricing calculations, companies can streamline their pricing strategies and better manage their costs. However, critics argue that basing-point pricing can lead to unfair pricing practices and anti-competitive behavior in certain industries.
Overall, basing-point pricing is a common pricing strategy used by companies in various industries to determine the cost of their products based on a specific point of origin.
Examples of Basing-point pricing:
- A steel manufacturer sets its main factory as the basing point for pricing its steel products. When selling to customers in different regions, the company calculates transportation costs from the factory to each location and adjusts the product price accordingly.
- An electronics retailer uses a central distribution center as the basing point for pricing its products. The retailer factors in shipping costs from the distribution center to individual stores when setting prices for its electronic goods.
Learn more about Basing-point pricing on Wikipedia.