Pricing methods

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A insight of some most popularly used pricing methods

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  • Pricing methods

    1. 1.  Method use to price a product or a service It is aimed at finding a product’s price Determined on expenses such as advertising and labour It also includes marketing objectives, consumer demand, product attributes Competitors pricing, market and economic trends also play a vital role in deciding the price
    2. 2.  Penetration Pricing Market Skimming Value Pricing Psychological Pricing Price Discrimination Tender Pricing Destroyer Pricing Full Cost Pricing Target Pricing Marginal Cost Pricing Cost Plus Pricing
    3. 3.  Prices set to penetrate the market Low prices to secure high volumes To attract customers to a new product or service Prices are low to get competitors customer Typically used in mass market products like – Chocolates, household goods, food stuffs etc.
    4. 4.  High price and low volumes Skimming the profit from the market Goods are sold at a higher price so that fewer sales are required to break even Skimming is used to reimburse the cost of investment of research into the product Eg. Playstation, jewellery, digital technology etc.
    5. 5.  Price is set in accordance to customer perceptions about the product It is always predicated upon an understanding of customer value It is successful when products are sold in niche market Eg. Rolls Royce, Rolex, Private jets etc.
    6. 6.  Pricing designed to have a psychological impact It is used to play with the consumers perceptions Classic example – selling a Television set for Rs.9999 instead of Rs.10000
    7. 7.  Charging a different price for the same goods/services in different markets It allows the company to earn a higher profit The company charges each customer the maximum that he or she is willing to pay Eg. Movie theatre charge 3 different ticket rates – Platinum, Gold and Silver
    8. 8.  Many Contracts are awarded on a tender basis Firm (or firms) submit their prices for carrying out their works Purchaser then chooses which represents best value for the contract It is mostly done in secret Eg. Government Contracts
    9. 9.  Deliberately setting prices low in order to eliminate the competition Offering free gifts/products to force out (normally) smaller and weaker out of business Done to prevent new entrants into the market It is highly anti-competitive Illegal in countries like Australia and The United States of America
    10. 10.  The price is set to cover the variable cost and the fixed cost It is also called as a Absorption Cost Pricing/Break Even Pricing A price at which the cost or expenses are equal to revenues A no loss or gain situation Eg. If sales go below 200 company makes loss and if it goes above 200 it makes profit so company should achieve to sell atleast 200 to attain break even
    11. 11.  The selling price is calculated to produce a particular rate of investment These pricing methods are used by public utilities like electric companies It is also useful for companies with high investments – Automobile manufacturers
    12. 12.  The method of setting the price of a product to equal the cost of producing an extra unit of output The cost of producing one extra unit Marginal cost pricing allows flexibility It also aims to achieve “contribution” towards fixed costs and profit
    13. 13.  One of the simplest pricing method The company calculates the cost of producing the product and adds on % profit This method takes into considerations all relevant cost CPP = Total budgetary factor coat + selling and distribution cost + mark-up cost

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