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Cost-Based Pricing

Market-Based Pricing

Advantages

Disadvantages

Advantages

Disadvantages

Consistenc
y in profit
margins

Ignores
demand in
foreign markets
Disregards
competition
in foreign
markets
Limits profit; for
example, a
certain portion
of the market
may be willing
to pay a
premium above
the typical
margin set for a
cost-based
product (based
on market
characteristics).

Provides a
more
appropriate
match between
price and
country

More complex than


cost-based pricing
Can lead to lower
profit margins than
cost-based pricing
(depending on the
country, the market
or both)

More steady,
predictable
profits

Takes into
account target
market
characteristics
Considers
local and
global
competition
in a specific
market
Can yield a
higher profit
margin than
cost-based
pricing if
market
characteristics
permit; for
example, if
consumers will
pay a premium
for a particular
product

Source: Ilan Alon and Eugene Jaffe, Global Marketing: Contemporary Theory, Practice, and Cases, 1st
Edition, McGraw-Hill Irwin, New York, NY, 2011, pp. 315316.