Presents the base for pricing and different methods do it.

1. Raju Indukoori
PRICING METHODS

2. PRICE
• It is the monetary value paid in exchange of one unit of a product or service.
• It is determined or fixed by the seller in many cases after considering many
factors.
• Pricing of public utility services or products like water supply, power supply,
daily consumables through Public Distributions System (PDS)is done by the
government.
• Private goods some times are regulated by the government mandating the
seller to follow the guidelines. Ex: Price of alcohol and tobacco products.
Raju Indukoori
2

3. PRICE DETERMINANTS
1. Nature of the product
2. Cost of making or producing.
3. Demand for the product.
4. Supply conditions of the product.
5. Desired returns
6. Market share or leadership
7. Product life cycle stage.
8. Government rules, regulations and guidelines.
Raju Indukoori
3

4. PRICING METHODS
A. Public Pricing
B. Bidding
C. Market Based Pricing
D. Differential Pricing
E. Cost Based Pricing
F. Target Return Pricing
Raju Indukoori
4

5. A. PUBLIC PRICING
• This is relevant to all forms of governments including
municipality, corporation, state government and central
government.
• The objective is to make product or service available to their
residents as a welfare measure.
• In some cases they may be commercial when citizens income
levels are high. In UAE and other middle east countries, there is
no tax and the profits from the public utilities are the major
sources for government.
Raju Indukoori
5

6. B. BIDDING
This is related to the competitive pricing bids given to the giant
consumers like a big corporation, government and government
body.
• Suppliers: Bid their interest to supply large quantity of products
or services or both.
• Builders: high value projects invite bidders to build, erect or
handle over a period of time.
Raju Indukoori
6

7. C. MARKET BASED
PRICING
• This is relevant to those companies where success or survival is
the main objective.
• They ignore major factors influence price including the cost
elements.
Raju Indukoori
7

8. C. MARKET BASED
PRICING
This is more relevant and used by the firms which have market
penetration strategy. This becomes a good platform to be
executed. They include the following.
• Multinational companies.
• Blue Chip Companies.
• Companies which tapping new markets.
Raju Indukoori
8

9. C. TYPES OF MARKET BASED
PRICING
1. Perceived Value Pricing : Based on market research and
impact of advertisement. This is based on the calculated
demand.
2. Going rate pricing: This is based on the exising competition.
Prices of the market leaders are bench marked at to arrive at
on the prices.
• At par
• At discount
• At premium
Raju Indukoori
9

10. D. DIFFERENTIAL PRICING
Prices are differentiated on the same product based on various
parameters to maixmize the sales and profits. They are as
follows.
1. Market Segmentation : Age, gender, profession, etc.
2. Market Timing: Peak and off
3. Consumer location: Geographical distribution
4. Product Size: packing in different weights and volumes.
Raju Indukoori
10

11. E. COST BASED PRICING
The pricing process or strategy comprensively sits on the cost
elements like
• Fixed cost (FC) : Doesn’t vary with quantity of production
• Variable cost (VC): Varies with quantity of production
• Average cost (AC): Average of all costs = (TC + VC) / No of units
• Marginal cost : Cost of one additional unit of production.
• Sunk cost: Already incurred and cannot be recovered.
•
Raju Indukoori
11

12. E. COST BASED PRICING TYPES
1. Cost Plus Pricing
2. Market Up Pricing
3. Early Cash Recovery Pricing
4. Break Even Pricing
Raju Indukoori
12

13. 1.COST PLUS PRICING
This is most popular and simple method of pricing in the following
process.
• Arrive at the total cost (TC) including fixed and variable costs.
• Calculate cost per unit (CPU) by dividing the TC by the quantity of
the product to be sold.
• Determine the level of profit as a percentage of the CPU and
calculate the profit.
• Add profit per unit to CPU which becomes selling price (SP).
Raju Indukoori
13

14. 2. MARK UP PRICING
• This is an extension of cost plus pricing
• In cost plus pricing, rate of return or percentage of profit based on the
cost
• In mark up pricing the percentage of profit is calculated based on the
selling price (SP).
• Still it remains a part of cost based pricing methods.
Raju Indukoori
14

15. 3. EARLY RECOVER PRICING
• This is applicable to construction, fashion, electronic goods and other
products where the research and development is active to innovate
the product. This makes the existing product out dated or short lived.
• The sellers try to recover the investment or cost asap.
• Pay Back Period in Capital Budgeting is the tool used to know how
quickly they can get their investments.
• Accordingly the pricing is done to reap profits in short run.
Raju Indukoori
15

16. 4. BREAK EVEN PRICING
• It is also known as break even point.
• Break even is a point where the firm has neither profits not losses.
• It is a situation where you are neither making money nor losing money, but
all your costs have been covered.
• At this point, the firm equates its total cost with its total revenue.
• Firms with low fixed costs will have a low break-even point of sale and vice
versa.
• This is widely used for pricing decisions.
Raju Indukoori
16

17. E. TARGET PROFIT PRICING
The price is fixed based on the desired profits or returns of the
firm . This method is more relevant and suitable to the following
companies.
• Market leaders
• Monopolies
• Duopolies
• MNCs entering foreign markets.
• Firms operating in growth stage of product life cycle.
Raju Indukoori
17

18. E. TARGET PROFIT PRICING
PROCESS
• Fix the target profit return based on the following
A. Percentage of the Sales revenue.
B. Rate of return on invested capital.
• Relate the sales volume to the total sales revenue to arrive at the price.
• Fix the price structure so as to achieve the target rates of return.
Raju Indukoori
18

19. THANK YOU
Post your questions in the comments
Raju Indukoori 19