<P> In cost - plus pricing, a company first pricing determines its break - even price for the product . This is done by calculating all the costs involved in the production such as raw materials used in its transportation etc., marketing and distribution of the product . Then a markup is set for each unit, based on the profit the company needs to make, its sales objectives and the price it believes customers will pay . For example, if the company needs a 15 percent profit margin and the break - even price is $2.59, the price will be set at $3.05 ($2.59 / (1 - 15%)). </P> <P> In most skimming, goods are higher priced so that fewer sales are needed to break even . Selling a product at a high price, sacrificing high sales to gain a high profit is therefore "skimming" the market . Skimming is usually employed to reimburse the cost of investment of the original research into the product: commonly used in electronic markets when a new range, such as DVD players, are firstly dismarket at a high price . This strategy is often used to target "early adopters" of a product or service . Early adopters generally have a relatively lower price - sensitivity--this can be attributed to: their need for the product outweighing their need to economise; a greater understanding of the product's value; or simply having a higher disposable income . </P> <P> This strategy is employed only for a limited duration to recover most of the investment made to build the product . To gain further market share, a seller must use other pricing tactics such as economy or penetration . This method can have some setbacks as it could leave the product at a high price against the competition . </P> <P> Method of pricing where the seller offers at least three products, and where two of them have a similar or equal price . The two products with the similar prices should be the most expensive ones, and one of the two should be less attractive than the other . This strategy will make people compare the options with similar prices, and as a result sales of the more attractive high - priced item will increase . </P>

Pricing by new firms which produce same products at low cost is termed as