This PPT is one of the concept of Marketing i.e. Pricing Decision ,which is one of the main decision for a company to survive in the compititive market. So, This includes the Basic Methods of Pricing Decision.

3. ➢ Pricing method or
strategy is the route
taken by the firm
fixing the price.
➢The
method/strategy
must be appropriate
for achieving the
desired pricing
objectives.

4. Cost based
pricing
• Mark-Up
• Target
return
Competition
based
pricing
• Going rate
• Auction type
Demand
based
pricing
• Break even
analysis
• Perceived
value

5. ➢ The selling price is fixed by adding MARK-UP or MARGIN to its cost.
➢ Usually used by ;
Distributers, Marketing firms etc.
➢ Slower the turnaround of the product larger the margin and vice versa.
➢ Mark-ups are high on SEASONAL ITEMS, SPECIALITY ITEMS, DEMAND INELASTIC
ITEMS etc.
➢ Mark-up price = Unit cost /(1 – Desired return on sales)
➢EXAMPLES:
Demand inelastic item
Seasonal items

6. ➢ A FMCG company sells a bar of soap to retailer.
➢ Unit cost = VC + FC
➢ VC per unit = $10,
➢ Total FC = $3,00,000
➢ Number of units produced = 50,000
➢ Unit cost = $10+(3,00,000/50,000) = $16
➢ Now manufacturer wants to earn 20% mark-up on sale.
➢ Mark-up price = Unit cost/(1 – Desired return on sales)
= $16/(1 – 0.2) = $20

7. ➢ Similar to ABSORPTION COST pricing.
➢ The difference is fixing the profit margin.
➢ The PROFIT MARGIN/MARK-UP is fixed by considering the ROI.
➢ Firm will have return objectives, like 5% of invested capital, or 10% of sales
revenue.
➢ Then you arrange your price structure so as to achieve these target rates of return.
➢ MARKET LEADERS or MONOPOLISTS uses this pricing stratergy.
➢ EXAMPLES;
Market leaders ensuring
target sales

8. ITC ciggarettes
➢ Investment of the pen manufacturer = $1million
➢ Total sales = 50,000
➢ Expected ROI = 20%, Unit cost of a man = $16
➢ Target return price = Unit cost +(desired return * invested capital)/Unit sales
➢ TRP = $16 +(0.2*10,00,000/50,000)
= $20

9. PROS
• Simplicity
• Harmonious Competition
• Socially Justifiable
• It is Safer
• It moves with new technology
CONS
• Ignores Demand and Competition
• Arbitrary cost allocation
• Cost Irrelevance
• New Products
• No penalty for inefficiency

10. ➢ Setting a price based on market price basis.
➢ Used for homogenous products.
➢ Costs are difficult to measure/competitive response is uncertain.
➢ EXAMPLES;
Airlines industry
➢ Electronic goods

11. ➢ Electronic market places are selling a diverse range of products to dispose of
inventories and goods.
➢ Three major type of auctions:
✓ English Auctions (one seller many buyers).
✓ Dutch Auctions (one seller many buyers and vice versa).
✓ Sealed Bid Auctions (supplier submit only 1 bid) Example; government
biddings.
➢ EXAMPLES; a.) of Sealed Bid Auctions
Google IPO Bidding
( 1 seller many buyers )

12. b.) of Dutch Auctions
1 buyer many sellers
c.) of English Auctions

13. ➢ A break even point is that quantity of output (number of units produced) at which the
sales revenue equals the total costs, assuming a certain selling price.
➢ FORMULA;
➢ It means the break-even point depends upon the selling price.
➢ HIGHER THE SELLING PRICE , EARLIER BREAK-EVEN WILL BE ACHIEVED and
VICE-VERSA.
➢ It helps in determining selling price when we set price on basis of market demand.

14. ➢ The following diagram illustrates how SELLING PRICE helps in achieving break-
even point of a company.

15. ➢ Pricing on PERCEPTION.
➢ To increase prices without damaging customer relationships is by adding to the
perceived value of your product or service.
➢ EXAMPLES;
Perceived value;
Durability
Reliability
Service
Warranty