3. Markup pricing is a strategy in which a company first calculates the
cost of the product, then adds a proportion of it as markup.
Definition
Markup = (Sale price − Cost) / Sale price
Cost /(1 - desired return on sales) = Sale price
4. Example
A major general retailer, such as
Walmart
may apply a set percentage for each
product category
e.g: womens' clothing
automotive
garden supplies, etc
5. Definition
The process of setting an item's price by using an equation to compute the
price that will result in a certain level of planned profit given the sale of a
specified amount of items.
Target return price = unit cost + (desired return * invested capital) / unit sales
Advantage Disadvantage
a business is able to set its products'
pricesat such levels that its corporate
profit objectives are likely to be met if
sales continue to run at or above the
amount specified.
The price is eliminated by the amount
of sales. While in actual operation, the
level of price has a great impact on the
amount of sales.
6. Example
The unit cost was calculated based on the assumption
of a standard volume
The costing margin was then added to this normal unit
cost so as to achieve a 15% target rate
7. The valuation of good or service according to how much consumers are
willing to pay for it, rather than upon its production and delivery costs.
Definition
might be somewhat arbitrary
it can greatly assist in the effective
marketing of a product
Disadvantage:
Advantage:
10. Is it possible that a company set
prices without earning any profit?
11. Definition
Charging a fairly low
price for a high-quality
offering to win loyal
customers
Reengineering the company’s
operations to become low-cost
producer without sacrificing
quality
12. Example
Everyday low pricing(EDLP)
Charging a constant low price with little or
no price promotions and special sales
Providing 12,000 products, including furniture
and foods, which all in lower price and high
quality.
13. Definition
This strategy is setting a price for a product or service using the
prevailing market price as a basis.
Going rate pricing is a common practice with homogeneous products
with very little variation from one producer to another(inelastic products)
such as aluminum or steel.
16. Example
English auctions Dutch auctions
(runs B2B auctions) (China Tendering
&Bidding Association)
Sealed-bid auctions
Ebay is a site that the
seller puts up an item
and bidders raise their
offer price until the top
price is reached.The
highest bidder gets the
item.
The buyer announces
something he or she
wants to buy,and
potential sellers compete
to offer the lowest price.
suppliers submit only one
bid without knowing the
other bids.A tenderer will
choose the offer with
lowest price.
17. As we have mentioned in the previous slides, there are 6 main
methods in setting price of products or services.
1.Markup pricing strategy is the most elementary pricing
method for companies as the information is easier to get and its
calculation is weight much simple than others.
2.Target-return pricing method is usually used by public utilities
to make a fair return on investment.
3.Perceived-value pricing method is growing popular among
companies for thoes which focus on consumers' need.
4.Value pricing strategy is a way to win loyal customers and
value-concious one by setting low price for high-quality offering.
5.Going-rate pricing strategy is suitable for the companies
which produce inelastic products.
6.Auction-type pricing is also growing popular with the
development of technology as sellers and buyers can receive
more information from electronic marketplaces.
