Pricing methods in practice pdf

The advantage of incremental cost pricing is that it can be used to launch a new product with low cost so that it is readily accepted in the market, and also to open up a new customer base by reducing the price of an existing product.

Marginal Cost Pricing Marginal-cost pricing, in economics, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labour. Businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of Rs.

The business would choose this approach because the incremental profit of 10 paise from the transaction is better than no sale at all.

Target Pricing It is a refined variant of cost-plus pricing. The only difference between these two method is about setting the mark-up. The target pricing considers the derived reasonable rate of return on initial investment made by the firm in setting the mark-up. The rate of return is a relationship between the profits and suitably defined measure of invested capital. The profit target may be different for different firms and in different phases of business cycle.

Going Rate Pricing Going rate pricing is when a business sets the price of their product or service based on the market price. This pricing strategy is often used to price similar products, like commodities or generic items, that have little variation in design and function.

A going rate pricing strategy is most often used to price products or services that are homogenous and don't vary in design. Businesses that choose a going rate pricing strategy often set their prices based on the leader of the market. Since competitor prices tend to be similar, it's challenging to differentiate your product or service from the competition. Sealed Bid Pricing Sealed bid pricing is the process of offering to buy or sell products at prices designated in sealed bids.

Companies must submit their bids by a certain time. The bids are later reviewed all at once, and the most desirable one is chosen.

Sealed bids can occur on either the supplier or the buyer side. Via sealed bids, oil companies bid on tracts of land for potential drilling purposes, and the highest bidder is awarded the right to drill on the land. Similarly, consumers sometimes bid on lots to build houses. The highest bidder gets the lot. On the supplier side, contractors often bid on different jobs and the lowest bidder is awarded the job.

The government often makes purchases based on sealed bids. Dual Pricing. Dual pricing is the practice of setting different prices in different markets for the same product or service.

This tactic may be used by a business for a variety of reasons, but it is most often an aggressive move to take market share away from competitors. Dual pricing may be demand-based. For example, an airline may offer one price to an early customer and another, higher price to someone booking at the last minute. Additionally, businesses in many developing nations that rely on tourism employ dual pricing strategies. Local residents get lower prices for goods and services while tourists pay more.

In simple terms, price lining is a process of grouping similar offerings under different price brackets — each varying slightly by the quality features, or attributes on offer. These brackets usually tend to start low and go higher in price. Cyclical Pricing refers to appropriate pricing strategy at different stages of Business Cycle. Contraction comprises of the first two phases and the last two phases constitute expansion. Likewise during prosperity, high price is charged.

LOSS LEADER Loss leader pricing is a marketing strategy that involves selecting one or more retail products to be sold below cost — at a loss to the retailer — in order to get customers in the door. The loss leaders are the products being sold at such low prices as an enticement to buyers to step foot in the store. So read, learn, and choose the best practice for your business. In marketing, there are six main pricing methods, the two of which are methods of calculating prices based on the cost of the product cost-oriented pricing , and four other pricing models are based on the factors of market environment market-oriented pricing.

Such methods are suitable for companies that are not likely to affect the cost of products, for example, those with a well-established product cycle when they cannot reduce costs. Get lost in the search results? Let Promodo experts help your website index better by optimising your pages, improving your content, and enhancing your linking strategy. The market-oriented pricing, on the contrary, takes the impact of market factors on the value of the product as a basis: the perception of consumers, formed patterns of behaviour, the demand curve, and the competitive environment of the market.

The starting point for calculating the value of the goods is the ideal price of the product that provides the maximum amount of sales and profits. And knowing the target value of the goods, the company aims to reduce costs and get the desired level of cost. Let us consider in detail each retailer pricing strategy with ready-made formulas for calculating and methodical recommendations.

At first glance, it looks quite simple: to calculate the price, you just need to show the item to your target consumers and ask them about the expected value of the product being demonstrated. However, in practice, to achieve the purity of the experiment and get undistorted data, it is required to comply with certain conditions. Why include the adjustment factor?

In this case, the purchase of goods would seem advantageous to the customer. To set the price according to the method of perceived value it is necessary to conduct a quantitative study of the finished product with the final characteristics, packaging, size, etc. Research process looks as follows:. You demonstrate to the consumer the finished product without a price, surrounded by competitor products with a price tag. You ask your customer: what, in their opinion, should be the price of your product?

The named price will be the perceived value of the product. It is important to show the real price of competitive products because they allow your consumer to form a benchmark for the price of a new product of the company, participated in the study. This is a pricing model, which borders with charity and donation when it comes to setting the cost for products or services.

It was successfully implemented by Wikipedia, the Radiohead band and Humble Bundle digital video games store. The concept of price clusters or price barriers is formed in the minds of the target audience as a result of the accumulation of purchase experience. There are no universal price clusters, they are specific for each market and can be identified in the course of quantitative consumer research. To calculate the price with the help of this method, the first step required is a quantitative consumer research on the subject of formed price clusters in the minds of the audience.

You should identify the image characteristics of each cluster, and to assess the price segment where the developed product gets with its final characteristics and design. Then, to estimate the probability of purchase of a developed product in every price cluster and, guided by the results of research, knowledge about the prices of competitors and target levels of profitability, to set the price for a new product.

Typically, this type of pricing is used in conjunction with other pricing methods and serves as an adjustment factor. Tip: Research the psychological effect of certain num bers. Competition is the main growth driver for any online business. This pricing method is a method, when the company sets the price, focusing on the cost of competitive products. The cost price of the product, in this case, is secondary and depends on the target price of the product.

Principles of price positioning may be as follows:. Tip: Why not compete with yourself? Pricing Strategies. Related Books Free with a 30 day trial from Scribd. Get Clients Now! Propaganda Edward Bernays. Related Audiobooks Free with a 30 day trial from Scribd. Unleashing the Idea Virus Seth Godin. Dan Ariely. Cialdini, PhD. Inside the Tornado Geoffrey A. I did and I am more than satisfied. Aditya Das. Mithil Karthik. Bivin Joseph.

Show More. Views Total views. Actions Shares. No notes for slide. Methods of pricing 1. Pricing Methods 1. Mark Up Pricing 2. Absorption cost 3. Target- Return Pricing 4. Perceived Value Pricing 5. Going Rate Pricing 6. Example Demand inelastic item Seasonal Items 6. Example Delhi - 5.