Additional Mark-On

What is Additional Mark-On?

A mark-on is the difference between the cost of good and its selling price. It is also referred to as the mark-up price. Mark-on price is the price at which the company achieves profit, after all its production costs have been incurred. Production costs include all the fixed costs and the variable costs. Mark-on can be calculated in the form of percentage or value.

A mark-on of 10% indicates that if the Cost price of the item is 100Rs, then the Selling price would be 110Rs.

Additional mark-on is the additional increase in the price of the commodity, done to achieve higher profits, due to the increase in demand of the commodity during various seasons or holiday period. This strategy is used by various manufacturers who produce goods that have a seasonal variation in demand.

Example: Air conditioners (AC’s). Companies manufacturing AC’s increase the price of AC’s during peak summer seasons of April-May. Though the prices are already set high at the beginning of the summer season i.e. in March, they put an additional mark-on in the months of April-May to increase profits.

Travel companies use the same strategy. Suppose, a person books a tour scheduled on 1st May, on 1st March, the company charges him 1000Rs. If he books it on 1st April the company may charge 1200Rs. And if he books the tour on 29th April, the company charges him 1500Rs. This is how additional mark-on is used. More is the demand of the product; more is the additional mark-on price.

As seen in the above example, the cost of the camp increases by 2000Rs. after 1st Feb and there is an additional mark-on of 2000Rs, as the camp date nears.

Advantage of mark-on pricing is that it is easy to determine the production cost and is beneficial in times of inflation. Disadvantage is that fixed costs never change, thus, not promoting the search for better production methods.

 

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