The document discusses several pricing methods that companies use to determine prices for goods and services. It describes cost plus pricing, where a company adds a markup percentage to their total costs to determine the price. It also outlines market skimming pricing, where a high initial price is set to earn profits from early adopters, and value pricing, where the price is based on the perceived value to customers. Finally, it summarizes penetration pricing, where a low initial price is used to gain market share, and target pricing, where the price is set to achieve a specific profit goal.

1. PRICING METHODS

2. INTRODUCTION
• The Pricing Methods are the ways in which the price of
goods and services can be calculated by considering all the
factors such as the product/service, competition, target
audience, product’s life cycle, firm’s vision of expansion,
etc. influencing the pricing strategy as a whole.

3. Objectives of Pricing Methods
• maximize long-run profit
• maximize short-run profit
• increase sales volume (quantity)
• increase monetary sales
• increase market share
• obtain a target rate of return on investment (ROI)
• company growth
• maintain price leadership
• desensitize customers to price
• discourage new entrants into the industry

4. Cost Plus Pricing
• 1) Cost-plus pricing is a straightforward and simple way to arrive at a
sales price by adding a markup to the cost of a product.
• 2) Cost Plus Pricing=Cost+Fair Profit.
• 3) Cost includes direct labour costs, direct material cost and the
overheads.
• 4) Fair Profit refers to a fixed percentage of profit mark up.

5. •
5) For example:
• ABC International has designed a product that contains the following costs:
• Direct material costs = ₹15
• Direct labor costs = ₹25
• Allocated overhead = ₹10
• Mark up=10%
• Total cost=15+25+10=₹50.
• Fair Price=50*10%=₹5
• Cost Plus Price=50+5=₹55

6. • 6)Advantages:
• Simple
• Assured Contract Profits
• Justifiable

7. Market Skimming Pricing
• High Price low volume
• Skim the Profit from the Market
• Suitable for the products that have short life cycle or Which will face
competition at some point in future.
• Examples; Play Station, Digital Technology & DVD etc.

8. Value Pricing
• Based on consumer Perception.
• Price charged according to the Customers Perception.
• Price set by the company as per the perceived value.
• Example; Status Products/ Exclusive Products.

9. Loss Leader Pricing
• Goods/services deliberately sold below cost to encourage sales
elsewhere
• Typical in supermarkets, e.g. at Christmas, selling bottles of gin at
£3 in the hope that people will be attracted to the store and buy
other things
• Purchases of other items more than covers ‘loss’ on item sold
• e.g. ‘Free’ mobile phone when taking on contract package

10. Penetration Pricing
• Price set to ‘penetrate the market’
• ‘Low’ price to secure high volumes
• Typical in mass market products – chocolate bars, food stuffs,
household goods, etc.
• Suitable for products with long anticipated life cycles
• May be useful if launching into a new market

11. Target Pricing
• Setting price to ‘target’ a specified profit level
• Estimates of the cost and potential revenue at different prices, and
thus the break-even have to be made, to determine the mark-up
• Mark-up = Profit/Cost x 100

12. Marginal Cost Pricing
• Marginal cost – the cost of producing ONE extra or ONE fewer item of production
• MC pricing – allows flexibility
• Particularly relevant in transport where fixed costs may be relatively high
• Allows variable pricing structure – e.g. on a flight from London to New York –
providing the cost of the extra passenger is covered, the price could be varied a
good deal to attract customers and fill the aircraft

13. THANK YOU