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der. Development costs are expenses involved in bringing new products to market. Often these costs are spread out over many years and sometimes different products. Should price be set to recover these costs and, if so, in what time period ? In some industries such as pharmaceuticals, patent protection allows panies to set the prices of prescription drugs high initially to recover development costs and then reduce them when the drugs e off patent and the generics enter the category. However, if there is no legal way to keep petitors out of the market, these costs must be viewed as sunk costs that do not affect decision making after the product is introduced into the market. Otherwise, the resulting price may be above customers’ perceived value. A second kind of cost is overhead costs such as the corporate jet and the president’s salary. These costs must ultimately be covered by revenues from individual products, but they are not associated with individual products but do not vary with sales volume. Finally, there are variable costs, the perunit costs of making the product or delivering the service. Of course, these must be recovered by the price. Therefore, one problem with using costs to set price is that several kinds of costs are related in different ways to an individual product. When costs are used as the basis for setting price, you should ask “Which costs?” Are they costs related to marketing the product or product line or are they costs over which you have no control? Using price as a costrecovery mechanism can lead to a mismatch between price and customers’ perceptions of value for your product or service. A second problem with using costs to set price, particularly variable or unit costs, is that they may be a function of volume and, as a result, may be difficult to know in advance when developing marketing plans. Even if this is not the case, unit costs may be related to the use of capacity, which is also uncertain. In most instances, customers do not really care what the firm’s costs are。 as Drucker puts it, “Customers do not see it as their job to ensure manufacturers a profit.” Using cost increases to justify raising price generates little sympathy from customers, particularly industrial customers, because the price increase has just raised their costs, which they may not be able to pass along to their customers. Costs do play an important role in pricing: In the new product development process, the projected costs (however defined) and price determine whether a product is forecasted to be sufficiently profitable to be introduced. Pricing Objective Your pricing policy can acplish many different objectives for your product. Peration Pricing Peration pricing or market share pricing entails giving most of the value to the customer and keeping a small margin. The objective is to gain as much market share as pos