Methods Of Price Determination

A. Cost Based Pricing Methods.

B. Competition Based Pricing Methods.
C. Demand Based Pricing Methods
 Cost Based Pricing Methods

I. Cost Plus Pricing Methods.

II. Target Return Pricing Method.
 Cost Plus Pricing Method

Also called mark-up pricing methods.

Involves adding a percentage of the cost to arrive at
the price.
Difference in cost plus and mark-up pricing
Mark-up pricing is the addition of percentage of the
sales rather than of the cost.
 Target Return Pricing

Based on break even analysis.

Sets price at a desired percentage return over and
above the break even point.
Cost of producing and offering the goods for sale are
determined then a target percentage return is added
to the cost.
 Going Rate Pricing
 Most commonly used in market where there is Price

Leadership.

 Emphasis is on the Market rather than on Costs and Demand.

 Generally happens in Oligopolistic, Monopolistic and Pure

Competition .
Going Price Policy is adopted when-

 Costs are difficult to measure.

 The firm wants to avoid tension of price rivalry in the

market
 When there is price leadership of a dominant firm in the

market.
 Where competition is limited, ‘going rate’ pricing may be

applicable – banks, petrol, supermarkets, electrical goods –

find very similar prices in all outlets
 Sealed Bid Pricing

A price of goods or services for which suppliers are invited to submit bids. The
bids are considered together by the buyer who then chooses the lowest bidder.
 Usually Government contracts are awarded through a system known as

Tenders.
The firm that prices the lowest wins the contract . However the firm cannot set

a price below a certain level.

The price set has to be in relation with the “expected profits”.

In rare cases, contractors are asked to submit a "bid sample" of their product.
 The Sealed-Bidding Process:

Preparation of the invitation for bids

Publicizing of the invitation for bids
Receipt of bids
Public opening of bids
Evaluation, and comparison of bids
Selection of the lowest-priced responsive bid
Award of contract .