PRICING METHODS;
Fundamentals which may affect price decisions are consumer situation and cost considerations. It is quite unfortunate that many firms have no clear pricing policies. The following are the basic policies recognised for pricing as given below:
Methods of pricing
1. Cost Based:
Cost of production of a product is the most important variable and most important determinant of its price. There may be many types of costs such as -fixed cost, variable cost, total cost, average cost, and marginal cost etc. Methods of determining price on the basis of cost are as under
• Mar-up/cost plus pricing
• Full cost/ Absorption pricing
• Marginal/ Incremental pricing
• Break-even Pricing method
• Rate of return/ Target pricing.
2. Customer Demand Based Pricing:
The basic feature of all these demand- based method is that profits can be expected independent to the costs involved, but are dependent on the demand. This pricing method differs from Csot-driven pricing, as it starts by asking at what price the market will be prepared to pay for the product and works back to the level of profit and costs, which that price will afford to the organisation.
• What the Traffic Can Bear Pricing
• Skimming Based Pricing
• Penetration Based pricing
3. Market/ Competitor Based pricing
Market- based pricing means different things in different contexts. One uses it to refer to the practice of pricing based solely on the prices being offered by the competition. It is commonly applied by small cola brand might set its price based on the price of Coca-Cola.Market-based pricing can also be an effective strategy for a low-cost supplier seeking to enter a new market. Most companies fix the prices of their products after a careful consideration of the competitors price structure. Deliberate policy may be formulated to sell its products in the competitive market. Four policy alternatives are available to the firm under this pricing method
• Parity Pricing or Going Rate Pricing
• Pricing Below Competitive Level or Discount pricing
• Pricing Above Competitive Level or Premium Pricing
• Competitive Bidding/ Sealed Bid/Tender Pricing.
4. Other Pricing Methods:
the major other pricing methods are as follows.
• Value Based Pricing: Good pricing begins with a complete understanding of the value that a product or service creates for customers. Value-based pricing uses buyer's perceptions of value, not the seller's cost, as the key to pricing.Value-based pricing means that the marketer firstly designs a product, after that marketing program and then set the price.
• Affordability Based Pricing: The method is relevant in respect of essential commodities, which meet the basic needs of all sections of the population
• Prestige Based Pricing: As a purchasing motivation, 'prestige' is rarely openly admitted.Many buyers do not realise that this might be their prime motivation for wanting to possess a particular item. This is associated with what we term 'psychological pricing'. Prestige pricing' suggests a demand curve that is given in figure
• Market and Demand Based Pricing:
Good pricing starts with an understanding of how customers perceptions of value affect the prices they are willing to pay. Both consumer and industrial buyers balance the price of a product or service against the benefits of owning it. Thus, before setting prices, the marketer must understand the relationship between price and demand for its product.
Fundamentals which may affect price decisions are consumer situation and cost considerations. It is quite unfortunate that many firms have no clear pricing policies. The following are the basic policies recognised for pricing as given below:
Methods of pricing
1. Cost Based:
Cost of production of a product is the most important variable and most important determinant of its price. There may be many types of costs such as -fixed cost, variable cost, total cost, average cost, and marginal cost etc. Methods of determining price on the basis of cost are as under
• Mar-up/cost plus pricing
• Full cost/ Absorption pricing
• Marginal/ Incremental pricing
• Break-even Pricing method
• Rate of return/ Target pricing.
2. Customer Demand Based Pricing:
The basic feature of all these demand- based method is that profits can be expected independent to the costs involved, but are dependent on the demand. This pricing method differs from Csot-driven pricing, as it starts by asking at what price the market will be prepared to pay for the product and works back to the level of profit and costs, which that price will afford to the organisation.
• What the Traffic Can Bear Pricing
• Skimming Based Pricing
• Penetration Based pricing
3. Market/ Competitor Based pricing
Market- based pricing means different things in different contexts. One uses it to refer to the practice of pricing based solely on the prices being offered by the competition. It is commonly applied by small cola brand might set its price based on the price of Coca-Cola.Market-based pricing can also be an effective strategy for a low-cost supplier seeking to enter a new market. Most companies fix the prices of their products after a careful consideration of the competitors price structure. Deliberate policy may be formulated to sell its products in the competitive market. Four policy alternatives are available to the firm under this pricing method
• Parity Pricing or Going Rate Pricing
• Pricing Below Competitive Level or Discount pricing
• Pricing Above Competitive Level or Premium Pricing
• Competitive Bidding/ Sealed Bid/Tender Pricing.
4. Other Pricing Methods:
the major other pricing methods are as follows.
• Value Based Pricing: Good pricing begins with a complete understanding of the value that a product or service creates for customers. Value-based pricing uses buyer's perceptions of value, not the seller's cost, as the key to pricing.Value-based pricing means that the marketer firstly designs a product, after that marketing program and then set the price.
• Affordability Based Pricing: The method is relevant in respect of essential commodities, which meet the basic needs of all sections of the population
• Prestige Based Pricing: As a purchasing motivation, 'prestige' is rarely openly admitted.Many buyers do not realise that this might be their prime motivation for wanting to possess a particular item. This is associated with what we term 'psychological pricing'. Prestige pricing' suggests a demand curve that is given in figure
• Market and Demand Based Pricing:
Good pricing starts with an understanding of how customers perceptions of value affect the prices they are willing to pay. Both consumer and industrial buyers balance the price of a product or service against the benefits of owning it. Thus, before setting prices, the marketer must understand the relationship between price and demand for its product.
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