Pricing methods Leena K P Assistant Professor Department

Pricing methods Leena K P Assistant Professor Department of Commerce St. Mary’s College , Thrissur

Pricing- Definition v Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. v Pricing is the method of determining the value a producer will get in the exchange of goods and services. Simply, pricing method is used to set the price of producer’s offerings relevant to both the producer and the customer. Pricing Strategies, Leena K P, St. Mary’s College

Broad categories of Pricing Methods v. Cost – based pricing v. Demand – based pricing v. Competition - based pricing v. Product line based pricing v. Affordability – based pricing v. Value based pricing Pricing Strategies, Leena K P, St. Mary’s College

Cost – Based Pricing v. Mark-up pricing / Cost plus pricing - Selling price of the product is fixed by adding margin to the cost price. v. Absorption pricing/ Full cost pricing - Total cost + required margin of the product v. Target profit pricing/ Rate of return pricing - Total cost + rate of return v. Marginal cost pricing - Maximising the contribution towards fixed cost v. Break even pricing - Variable cost + fixed cost Pricing Strategies, Leena K P, St. Mary’s College

Demand/Market based pricing v“What the traffic can bear” pricing – seller takes the maximum price which the customers are willing to pay v. Skimming pricing – High price and profits in the early stages of marketing a product v. Penetration pricing – Seeks to achieve greater market penetration through relatively low prices v. Differential pricing – Practice of charging diferent prices to different customers Pricing Strategies, Leena K P, St. Mary’s College

v. Premium pricing – Use high price where there is uniqueness about the product or service v. Neutral pricing – Offering extra value or benefits with price remaining competitive Pricing Strategies, Leena K P, St. Mary’s College

Competition – based pricing v. Discount Pricing – Setting high prices initially v. Going rate pricing – In a competitive market firms fix price which is equal to the average price charged by other firms in the industry v. Customary pricing/ Charm pricing/Conventional pricing – Fixed by customary prices v. Sealed bid pricing – Fix prices based on competitors Pricing Strategies, Leena K P, St. Mary’s College

Product line pricing Uses one product with various class distinction Ex: Car that has various models. Pricing Strategies, Leena K P, St. Mary’s College

Value based pricing v Perceived value pricing – Price fixed on the basis of value perceived by the customer v Value for money pricing – On the basis of value which the customer get from the product Pricing Strategies, Leena K P, St. Mary’s College

Steps in building Pricing Methods 1. Selecting the Pricing Objective 2. Determining Demand 3. Estimating Costs 4. Analyzing Competitors’ Costs, Prices, and Offers 5. Selecting a Pricing Method 6. Selecting the Final Price