What is the difference between cost and price?
Cost is basically the aggregate monetary value of the inputs used in the production of the goods or delivery of services. Conversely, Value of a product or service is the utility or worth of the product or service for an individual. Show
In a marketplace, you can find a range of products, offered for sale by different marketers, which differ in their size, shape, quality, performance, type, etc. You might have noticed that at the time of shopping, the first thing that we usually check in a product or service is – what is its price? And we also try to estimate – how much does it cost? But before taking the buying decision, all that matters for a person is – what is its value? In this piece of writing, you will get to know the differences between price, cost and value. Content: Price Vs Cost Vs Value
Comparison ChartBasis for ComparisonPriceCostValueMeaningPrice is the amount paid for acquiring any product or service.Cost is the amount incurred in producing and maintaining the product.Value is the utility of a good or service for a customer.FigureDeterminesWhat a company charges?What a company incurs or spend?What product pays to the customers i.e. worth.AscertainmentPrice is ascertained from the customer's or marketer's perspective.Cost is ascertained from the producer's perspective.Value is ascertained from the consumer's perspective.EstimationThrough Pricing policyThrough computation of expenditureThrough usefulnessImpact of variations in marketPrices of product increase or decrease.Cost of inputs rises or fall.Value remains unchanged.Monetary MeasurementYesYesNoDefinition of PricePrice is the consideration given in return for acquiring a good or service. In a commercial transaction, price refers to the amount charged by the seller from the buyer, in exchange for any product or service, which includes cost and profit. It is the return for quality, often expressed by the value, at the marketplace. It must be noted that it is referred by different names when used in different contexts, i.e. when the subject matter of the commercial transaction is a good it is called as ‘price’, but when the subject matter is a ‘service’, it can be known as:
Further, it is one of the four P’s of the marketing mix, the other being product, place (distribution) and promotion. The price element differs from the other three elements in the sense that it is the price which generates revenue, while the other three adds to the cost of production. Definition of CostThe cost can be defined as the total amount spent on the inputs like land, labour, capital, machinery, material, etc. with an aim of producing the product or supplying the services. It can be anything which adds to the expense of product or service manufactured or supplied by the firm. In simple terms, cost implies the financial worth of the sacrifice made, to obtain the goods or services. It is incurred for present or future benefits. The basic elements of cost are: Material, Labour and Overheads. At the time of setting up a price, it is necessary to identify and compute all the costs, as they affect the business profitability to a great extent. Further, costs are divided into fixed costs and variable costs:
Definition of ValueValue can be described as the benefit derived by the customer from the product or service. In clearer terms, value is what a customer perceives the product or service is worth to them. The value is decided by the marketplace on the basis of the benefits received from the combination of features, or specifications, present in a particular product. The combination of features covers material or functional characteristics, product reliability, user-friendliness, appearance, customer support and technical assistance, etc. Characteristics of Value
Key Differences Between Price, Cost and ValueTo have a deeper understanding of the difference between price, cost and value, let’s take a look at the points stated below:
ExamplesExample 1: Price Vs Cost Vs Value Suppose a person goes to a shop to buy medicine, for which he pays Rs. 1000, so it is the price. Further, the amount the seller, or the manufacturer spent on producing the medicine, is its cost, which may include the cost of labour, material, transportation, research and development, office expenses etc. The cost is usually less in comparison to the price on which it is sold. Now, the medicine bought by the buyer is of utmost importance to him, as it is going to treat his loved ones. This usefulness is of the medicine at that point of time is nothing but ‘value’. Example 2 (a): Price Vs Cost If you purchase a brand new car, then the amount you pay to the car seller for its acquisition is its Price while the amount invested in manufacturing the car is its Cost. Normally, the price of any goods or services is more than its cost because the price includes the profit.Example 2 (b): Cost Vs Value If you are a watch manufacturer and produce millions of watch on a daily basis, then the cost of production is your prior concern and not the value of the product. You may try to achieve the economies of scale i.e. mass production at less cost. Whereas from the customer’s perspective, the purpose for which the watch is purchased must be fulfilled, which determines its value.Example 2 (c): Value Vs Price The reason behind this is its value, as the value of water is much for us, it is available in abundance, that is why anyone can get it at a low price, while the value of a diamond is less for us, but still, it is a status symbol. Therefore, it is priced very high. ConclusionSo, we have understood that to increase the market share or to create a competitive edge, the firm can either increase the perceived benefits, i.e. value derived from the product or reduce the perceived cost. Therefore, both will affect the price. From the customer’s viewpoint, they have set criteria, as to what extent they can or they are willing to spend on a particular product, to satisfy their needs. Obviously, they would like to pay the least. What is difference between cost price and selling price?The cost price of an item is the amount spent to purchase it or the price it is manufactured. The selling price of an item is the price at which it is sold.
Which is higher price or cost?Normally, the price of any service or goods will be more than its cost because the price includes the profit margin. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount.
What is the difference between price and cost analysis?Cost analysis and price analysis are two unique methods of projecting costs for projects and programs. Price Analysis looks purely at the unit price from a vendor while Cost Analysis incorporates the reasonable cost to the vendor of producing that item to determine if the price quotes are fair and appropriate.
What is the difference between cost price and marked price?Cost price is actually the ultimate price at which the seller buys the product or service. He then adds a percentage of profit to it. The list price or marked price is the price which a seller fixes after adding the needed percentage of profit.
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