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It is often the pricing target of a company, and the product changes with time, which depends on the stage of the product and its life cycle. In the introduction stage, the goal may be to recover the development cost as soon as possible. In order to achieve this goal, manufacturers may charge a very high initial price, which is called skimming-then after the price drops, the products are no longer novel and highly competitive. In addition, the company may try to set up a point of sale and charge a lower initial price, which is called penetration pricing. The purpose of doing this is to achieve high sales quickly, realize economies of scale and reduce unit costs. This approach may have the advantage of preventing competitors, because lower prices limit everyone's profit potential.

Later, in the mature stage, the goal may be to attract more customers or maximize the products provided by cash. As products enter recession, the company's goal may be to get rid of business quickly. To do this, it is possible to build a low price that will clear the inventory.

Every company must translate its specific goals into specific products at specific prices. In order to do this, we must first analyze its cost, because the cost establishes the lowest acceptable price. In order to survive for a long time, the company must collect fees, which will be used to pay for the production and sales of products.

There are two kinds of costs to produce a product: fixed cost and variable cost. Fixed costs-including payment of rent, electricity, insurance and management fees-will not be affected by the number of products sold. Whether the company sells 10 units or 100 units, the construction rent must be paid on time. On the other hand, variable costs also depend on sales. They include raw materials, production, consumption and articles used for labor in the production process. Total cost The sum of fixed and variable costs of operating a business.

Generally speaking, the number of cost reduction has increased. The more your unit produces, the lower the unit cost is usually, because the fixed cost is spread over more units. In addition, because you produce more units, you realize economies of scale in production, sales, distribution and promotion. In addition, with the improvement of employees' working ability, production and marketing costs will drop even more. This phenomenon is called experience curve, which makes enterprises encourage their products to have relatively low prices in order to establish quantity.