Customer Oriented or Perceived Value Pricing There is an increasing trend to price the product on the basis of the customers

perception of its value. This method takes into account all elements of marketing mix and the positioning strategy of the firm. This method helps the firm in reducing the threat of price wars. But the key to this method is to correctly understand customers perception of product value and not to overestimate the firms product value. Marketing research can play an important role here. Geographic Pricing Strategy This strategy seeks to exploit economies of scale by pricing the product below the competitors in one market and adopting a penetration strategy in the other. The former is termed as second market discounting. This method is a part of the differential pricing strategy where the firm either dumps or sells below its cost in the market to utilize its existing surplus capacity. So in geographic pricing strategy, a firm may charge a premium in one market, penetration price in another market and a discounted price in the third. Pricing of Multiple Products In a multi-product corporation, production decisions relating to one product may affect the manufacturing or marketing costs of other related products. The product may be interrelated or independent. For evolving price policy for multi-product firm, certain basic considerations involved in decision making are: 1. Price and Cost relationship in product line. 2. Demand relationship in product line. Competitive differences 1. Price and Cost relationship in product line. Cost conditions determines price of the product. Therefore cost estimates should be correctly made. Although a firm must cover its common costs. Proper pricing does requires, that prices at least cover the incremental cost of producing each good. As long as the price of a product exceeds its incremental costs, the firm can increase total profit by supplying that product. 2. Demand relationship in product line. Competitive differences . Inter-relation of Demand for multi product.

Demand inter-relationship arise because of competition in which case they may become substitutes or complementary goods. Sale of one product may affect the sale of another product. Different demand elasticity of different consumers may allow the firm to follow policies of price discrimination in different market segments. In such a situation, pricing of the multi-product will have to done in such a way that maximum return could be obtained from each market segments by selling maximum products. 1. Competitive differences. 2. 3. Competitive differences. 3. For making pricing decisions for a product line, assessment of degree of competitiveness has to be considered. Such an assessment will set up market share for each product. A product having large market share can stand a high mark-up and can contribute to bear the losses. Transfer Pricing It refers to the determination of the price of the intermediate products sold by one semi autonomous division of the same firm. It is essential in determining the optimal output of each division and of the firm as a whole and in evaluating divisional performance. The correct transfer price for an intermediate product for which there is no external market is the marginal cost of production. When a perfectly competitive market for the intermediate product exists, the transfer price for intra-company sales of the intermediate product is given by the external competitive price for the intermediate products. When an intermediate product can be sold in an imperfect competitive market, the transfer price of the intermediate product is given at the point where MR=MC. For determining transfer price there are three alternative methods: 1. Market price basis: The suitable system of transfer of goods from one division to another under the same management to another company is the market price basis. The market price should be the transfer price. This method definitely avoids the possibility of passing the inefficiencies of one department to the other department. 2. Cost Basis: In case the product produced by a division of the firm can be sold only to another division of the firm, the inter divisional transfer should be priced at the level of the actual cost of production. 3. Cost plus Basis: Under this method the goods and services of each department are charged on the basis of actual cost plus a margin by way of profit. The major defect of this method is that the transferring department may add a high margin so as to raise the profit of the department.

Product Line Pricing Strategies These are a set of price strategies, which a multi-product firm can usefully adopt. In case of multi-product and fluctuating demand, the firm may adopt a combination of the following strategies to effectively manage its product line or maximize its profits across the product line. 1. Price Bundling: This strategy is used by a firm to even out the demand for its product. This is useful strategy for perishable and time bound products like food, hotel room or seat on a flight. Off season discounts and season tickets for music festivals are examples of price bundling strategy. This is a passive strategy aimed at correctly bundling the prices of related items so that the firm is able to maximizing its profits 2. Premium Pricing: This strategy is used by a firm that has heterogeneity of demand for substitute products with joint economies of scale. For e.g. Color television set. There are different models available with different features like the one with a remote control and another without it. Both are substitutable and satisfy the customer needs. But the firm may opt to premium price the first model and position it as the top product in the line for high income or upper income group of customers 3. Image Pricing: This strategy is used when consumers infer quality from the prices of substitute models or competing products. The firm varies its prices over different brands of the same product line. This is commonly used in cosmetics, toilet soaps and perfumes 4.