Concepts Cost based pricing


Description The sum of cost plus a profit margin is taken. We consider total cost plus pricing and with variable cost it is marginal costing Is average or full cost pricing and determine mark up pricing, based on target rate of return, degree of competition, price elasticity and availability of substitutes (P=AC + m)

Instances/Example Total cost including fixed and variable cost AC+ m refer to examples in Page 417 -418 (Geethika)

Cost plus mark up pricing

Marginal cost pricing Or incremental cost pricing.

Target return pricing

Price is very competitive and base price is less Variable cost is taken than in case of full cost pricing. It is the sum instead of total cost. of variable cost plus a profit margin Refer to example in page number 418 (Geethika) when mark up price is determined arbitrarily, First order derivatives the target price is rationally decided by the and second order producer. It is the minimum rate of return derivatives of profit which must be earned by the product. Margin maximization is determined on the basis of target rate of return, determined company’s experience, consumers paying capacity and risk involved is based on profit maximization and sales maximization Is strategy adopted for entering a new market, as well as for creating hurdles for others Is a dominant firm charge a low price, even lower than the ongoing price. Marginal cost is taken for selling maximum output Based on degree of competition BSNL in Indian phone industry, Air Deccan entry in civil aviation, Nirma in HLL (all with low cost success depends with elasticity) In monopoly (Microsoft) and in Oligopoly asbestos and aluminum In monopolistic market products like pasteurized milk, cosmetics, soft drinks, good soap, soft tooth brush Introduction stage:

Pricing based on firm’s objective Competition based pricing

Penetration pricing

Entry deterring pricing or Limit pricing

In order to eliminate or reduce competition, firms keep the price at low level, thus making the market unattractive for other players Is adopted when most of the players do not indulge in separate pricing but prefer to follow the prevailing market price.

Going rate pricing

Product life cycle based

An intelligent firm will devise different

with Demand for consumer ups and down wave like movements causes durables during trade cycle prosperity with increase in sales encourages employment. production. saturation. Pricing for a product is based on different stages like introduction. photocopier and toner Loss leader pricing Cyclical pricing economic condition do not remain stable.price pricing for a product at different stages of its lifecycle. growth. cellular phone. Growth stage charging lower price from residual customer since product has already created its own market . buy pack. maturity. In maturity stage sellers try to woo the customers by discounts. Phillips good products. Titan watches sellers try to create a high value of the product Koutons brand of and charge a low price. cartridge and printer. advertisements. men’s wear multi product firms sell one product at a low price and compensate the loss by other products Pen and ink. Reverse situation may happen during . first TV with flat screen. R&D producers charge a very high price in the Elasticity of demand beginning to skim the market and earn super is governed by status margins on sales symbol factor and not by intrinsic value of the product two or more products are handled for a single Super fast trains price. decline Price skimming Product bundling (or packaging) Perceived value pricing Value pricing internet facility. provide food and bedding as part of the train fare (Rajdhani express and Shatabdi express) Value of goods for different consumers Parker pens. product bundling. Tanishq depends upon their perception of utility of the jewellery. income and thus demand.

Some are independent of each others while some are dependent products Multi product pricing Ramsay pricing a model which became very useful for pricing decisions of a mutli product firm. wholesalers and retailers. tea. services or financials to another company to which it is related as it subsidiary or sister concern MNCs have to set a transfer prices for supply of goods. marketing rights from parent to a subsidiary . technical know how. cars. Airlines provide discounts on tickets purchased at different point of time All government departments including construction. commonly known as tenders Retail pricing marketing channel categorically consists of at least two sections. vehicles. He suggested that the government should levy high tax on the goods which had low price elasticity are the changes made when a company supplies goods. procurement of goods. and software. They constitute nearly 97% of all business . Phone tariff during night hours is low.Rigid pricing irrespective of economic condition companies should follow a stable pricing policy recession With more emphasis on cost and quality Flexible pricing firms should keep their prices flexible in order FMCG goods and to meet the challenges of increasing (or agricultural products decreasing) demand a firm producing more than one product with the same production facility needs to decide on a different pattern than a firm producing a single product Tata sons produces goods like trucks. jewellery. Interdependent than supply interdependent . machinery are done through tendering Upper limit pricing (Maximum retail price) plus Transfer pricing Peak Load pricing different prices are charged for the same facility used at different points of time by the same consumers Sealed bid pricing a separate market in which the buyer does not prefer an open market price but demands that he sellers provide their rates in sealed form.

Everyday low pricing strategy low price is charged throughout the year and none or very few special discounts are given on special occasions With large in size to avail economies of scale and has very low overhead expenses. also antidumping measures taken against imports and tariiffs imposed on consumer goods like cell batteries. unpredictable attitude. Also on the basis of tariff and trade restrictions prices are determined are those that is statutorily determined by the government commission Wall mart. sports hoes and china toys .low pricing (when overhead expenses that cannot afford everyday low pricing the firms attracts or snatches the customers from rivals by using ELDP) prices are determined based on the characteristics of foreign market situations. Products like steel.activity. medium of exchange. Big bazaar Export pricing Administered pricing mechanism Dumping a pricing strategy adopted by a country where a product is exported in bulk to a foreign country at a price which is either below the domestic market price or below the marginal cost of production unknown demand. sugarcane are identified for APM WTO and members initiatives. coal. There are also high. risk in exchange . fertilizers.

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