Perceived value pricing is that value costs and add a certain percentage to

which customers are willing to pay arrive at the selling price.

for a particular product or service
Going-rate pricing:
based on their perception about the
In this case, the benchmark for setting
product. Perceived value pricing is
prices is the price set by major com-
not based on the cost of the product,
petitors. If a major competitor
but it is the value which the customer
changes its price, then the smaller
thinks that he/she is deriving from
firms may also change their price,
consuming a product or a service. 
irrespective of their costs or demand.

Perceived value pricing is an Premium pricing:

important marketing strategy which A firm may charge a little higher if its
helps firms to price a particular products have some additional special
product features as compared to major
competitors.
Cost plus pricing
Break even pricing is the practice
Cost plus pricing involves adding a
of setting a price point at which a
certain percentage to cost in order to
business will earn zero profits on a
fix the price. For instance, if the cost
sale. The intention is to use low
of a product is Rs. 200 per unit and
prices as a tool to gain market
the marketer expects 10 per cent
share and drive competitors from
profit on costs, then the selling price
the marketplace. By doing so, a
will be Rs. 220. The difference
company may be able to increase its
between the selling price and the cost
production volumes to such an
is the profit. This method is simpler as
extent that it can reduce costs and
marketers can easily determine the
then earn a profit at what had
previously been the break even
price. 
Economy pricing is widely used in
the retail food business for groceries
such as canned and frozen goods sold
under generic food brands where
marketing and production costs have
been kept to a minimum.
Early recovery pricing
Some firms may fix a price to realize
early recovery of investment
involved, when market forecasts
suggest that the life of the market is
likely to be short, such as in the case
of fashion-related products or
technology-sensitive products.
Such pricing can also be used when a
firm anticipates that a large firm may
enter the market in the near future
with its lower prices, forcing existing
firms to exit. In such situations, firms
may fix a price level, which would
maximize short-term revenues and
reduce the firm’s medium-term risk.
Going-rate pricing:
In this case, the benchmark for setting
prices is the price set by major com-
petitors. If a major competitor
changes its price, then the smaller
firms may also change their price,
irrespective of their costs or demand.
Sealed-bid pricing:
This pricing is adopted in the case of
large orders or contracts, especially
those of industrial buyers or
government departments. The firms
submit sealed bids for jobs in
response to an advertisement.
In this case, the buyer expects the
lowest possible price and the seller is
expected to provide the best possible
quotation or tender. If a firm wants to
win a contract, then it has to submit a
lower price bid. For this purpose, the
firm has to anticipate the pricing
policy of the competitors and decide
the price offer.
Differentiated pricing:
Firms may charge different prices for
the same product or service.
The following are some the types of
differentiated pricing:
a. Customer segment pricing:
Here different customer groups are
charged different prices for the same
product or service depending on the
size of the order, payment terms, and
so on.
b. Time pricing:
Here different prices are charged for
the same product or service at
different timings or season. It includes
off-peak pricing, where low prices are
charged during low-demand tunings
or season.
c. Area pricing:
Here different prices are charged for
the same product in different market
areas. For instance, a firm may charge
a lower price in a new market to
attract customers.
d. Product form pricing:
Here different versions of the product
are priced differently but not
proportionately to their respective
costs. For instance, soft drinks of
200,300, 500 ml, etc., are priced
according to this strategy.
Time sensitive pricing
Time sensitive pricing is a cost-based
method for setting prices for goods
that have a short shelf life. Careful
consideration has to be taken to the
"Use By" and "Best Before" dates of
the products, in relation to the "Mark
Up" or "Return" of the products. That
is to say the shorter period of time
should have a lower Mark-up/Return
margin, thus increasing the
Turnover/sales of the product, and
decreasing the Wastage/loss of
products.
Contribution margin-based pricing
Contribution margin-based pricing
maximizes the profit derived from an
individual product, based on the
difference between the product's price
and variable costs (the product's
contribution margin per unit), and on
one's assumptions regarding the
relationship between the product's
price and the number of units that can
be sold at that price. The product's
contribution to total firm profit (i.e. to
operating income) is maximized when
a price is chosen that maximizes the
following: (contribution margin per
unit)X (number of units sold).
Decoy pricing
Method of pricing where the seller
offers at least three products, and
where two of them have a similar or
equal price. The two products with the
similar prices should be the most
expensive ones, and one of the two
should be less attractive than the
other. This strategy will make people
compare the options with similar
prices, and as a result sales of the
more attractive high-priced item will
increase.
Double ticketing
A form of deceptive pricing strategy
that sells a product at the higher of
two prices communicated to
the consumer on, accompanying, or
promoting the product
Freemium
Freemium is a revenue model that
works by offering a product or service
free of charge (typically digital
offerings such as software, content,
games, web services or other) while
charging a premium for advanced
features, functionality, or related
products and services. The word
"freemium" is a portmanteau
combining the two aspects of the
business model: "free" and
"premium". It has become a highly
popular model, with notable
successes.
High-low pricing
Methods of services offered by the
organization are regularly priced
higher than competitors, but through
promotions, advertisements, and or
coupons, lower prices are offered on
key items. The lower promotional
prices designed to bring customers to
the organization where the customer
is offered the promotional product as
well as the regular higher priced
products
Keystone pricing
A retail pricing strategy where retail
price is set at double the wholesale
price. For example, if a cost of a
product for a retailer is £100, then the
sale price would be £200. In a
competitive industry, it is often not
recommended to use Keystone
Pricing as a pricing strategy due to its
relatively high profit margin and the
fact that other variables need to be
taken into account
Limit pricing
A limit price is the price set by a
monopolist to discourage economic
entry into a market, and is illegal in
many countries. The limit price is the
price that the entrant would face upon
entering as long as the incumbent firm
did not decrease output. The limit
price is often lower than the average
cost of production or just low enough
to make entering not profitable. The
quantity produced by the incumbent
firm to act as a deterrent to entry is
usually larger than would be optimal
for a monopolist, but might still
produce higher economic profits than
would be earned under perfect
competition
Marginal-cost pricing
In business, the practice of setting the
price of a product to equal the extra
cost of producing an extra unit of
output. By this policy, a producer
charges, for each product unit sold,
only the addition to total cost
resulting from materials and direct
labor. Businesses often set prices
close to marginal cost during periods
of poor sales. If, for example, an item
has a marginal cost of $1.00 and a
normal selling price is $2.00, the firm
selling the item might wish to lower
the price to $1.10 if demand has
waned. The business would choose
this approach because the incremental
profit of 10 cents from the transaction
is better than no sale at all.
Cost plus pricing
Cost plus pricing is a cost-based
method for setting the prices of goods
and services. Under this approach, the
direct material cost, direct labor cost,
and overhead costs for a product are
added up and added to a markup
percentage (to create a profit margin)
in order to derive the price of the
product.
Pay what you want
Pay what you want is a pricing system
where buyers pay any desired amount
for a given commodity, sometimes
including zero. In some cases, a
minimum (floor) price may be set,
and/or a suggested price may be
indicated as guidance for the buyer.
The buyer can also select an amount
higher than the standard price for the
commodity.
Predatory pricing
Predatory pricing, also known as
aggressive pricing (also known as
"undercutting"), intended to drive out
competitors from a market. It is illegal
in some countries.
Companies or firms that tend to get
involved with the strategy of
predatory pricing often have the goal
to place restrictions or a barrier for
other new businesses from entering
the applicable market. It is an
unethical act which contradicts anti–
trust law, attempting to establish
within the market a monopoly by the
imposing Company.Predatory pricing
mainly occurs during price
competitions in the market as it is an
easy way to obfuscate the unethical
and illegal act. Using this strategy, in
the short term consumers will benefit
and be satisfied with lower cost
products. In the long run, firms often
will not benefit as this strategy will
continue to be used by other desirable, or represent exceptional
businesses to undercut competitors quality and distinction. Moreover, a
margins, causing an increase in premium price may portray the
competition within the field and meaning of better quality in the eyes
facilitating major losses.[15] This of the consumer.
strategy is dangerous as it could be
destructive to a firm in terms of losses
and even lead to complete business
failure

Price discrimination
Premium decoy pricing
Method of pricing where an Price discrimination is the practice of
organization artificially sets one setting a different price for the same
product price high, in order to boost product in different segments to the
sales of a lower priced product. market. For example, this can be for
different classes, such as ages, or for
Premium pricing
different opening times.
Premium pricing is the practice of
Price discrimination may improve
keeping the price of a product or
consumer surplus. When a firm price
service artificially high in order to
discriminates, it will sell up to the
encourage favorable perceptions
point where marginal cost meets the
among buyers, based solely on the
demand curve. There are 3 conditions
price. The practice is intended to
needed for a business to undertake
exploit the (not necessarily justifiable)
price discrimination, these include:
tendency for buyers to assume that
expensive items enjoy an exceptional 1. Accurately segment the market
reputation, are more reliable or
 2. Prevent resale
3. Have market power
There are three different types of
price discrimination which revolve
around the same strategy and same
goal – maximize profit by segmenting
the market, and extracting additional
consumer surplus
 First-degree price
discrimination
 The business charges
every consumer exactly how
much they are willing to pay
for the product.
 Second-degree price
discrimination
 The business uses
volume discounts which allows
buyers to purchase a higher
inventory at a reduced price.
While this benefits the high-
inventory buyer, it obviously
hurts the low-inventory buyer
who is forced to pay a higher
price. This buyer may then be
less competitive in the
downstream market.
 Third-degree price
discrimination
 This occurs when firms
segment the market into high
demand and low demand
groups
Sliding scale
The economic concept of sliding scale
at its most basic: people pay as they
are able to for services, events and
items. Those with access to more
resources pay more and thus provide
the cushion for those with less access
to pay less, creating a sustainable
economic underpinning for said
services, events and items
Target pricing business
Pricing method whereby the selling
price of a product is calculated to
produce a particular rate of return on
investment for a specific volume of
production. The target pricing method
is used most often by public utilities,
like electric and gas companies, and
companies whose capital investment
is high, like automobile
manufacturers.
Time-based pricing
A flexible pricing mechanism made
possible by advances in information
technology and employed mostly by
Internet-based companies. By
responding to market fluctuations or
large amounts of data gathered from
customers – ranging from where they
live to what they buy to how much
they have spent on past purchases
– dynamic pricing allows online
companies to adjust the prices of
identical goods to correspond to a
customer's willingness to pay
Variable pricing strategies
Variable pricing strategy sums up the
total cost of the variable
characteristics associated in the
production of the product. Examples
of variable characteristics are: interest
rates, location, date, and region of
production. The sum total of the
following characteristics is then
included within the original price of
the product during marketing.
Variable pricing enables product
prices to have a balance "between
sales volume and income per unit
sold" Variable pricing strategy has the
advantage of ensuring the sum total of
the cost businesses would face in
order to develop a new product.
Yield management strategies
Yield management is a strategy which
aims to monitor consumer behaviour
to gain and achieve maximum profit
through selling goods and services
that are perishable. The theory behind
this strategy is to focus on the
following aspects: buying behaviour
patterns of consumers, external
environmental factors and market
price to successfully gain the most
profit.This strategy of yield
management is commonly used by the
firms associated within the airlines
industry. For example: A customer
may purchase an airline ticket in the
day time for $600 and another
customer may purchase the same
airline ticket on the same day in the
evening for $800. Reason being that
during the day time the airline
contained many seats that were spare
which needed to be occupied and
sold. Thus, prices were decreased in
order to attract and manipulate the
customers into buying an airline ticket
with great deals or offers. However,
during the evening time most seats
were filled and the firm decided to
increase the price of the airline ticket
for the desperate customers who
needed to purchase the spare seats
that were available.  This type of
strategy is a vigilant way of
connecting with the target consumers
as well as flourishing the business.
Congestion pricing 
is a system of surcharging users
of public goods that are subject to
congestion through excess demand
such as higher peak charges for use
of bus
services, electricity, metros,railways, t
elephones, and road pricing to
reduce traffic congestion; airlines and
shipping companies may be charged
higher fees for slots at airports and
through canals at busy times.
This pricing strategy regulates
demand, making it possible to manage
congestion without increasing supply
.
Absorption pricing
is a method for setting prices, under
which the price of a product
includes all of the variable
costs attributable to it, as well as a
proportion of all fixed costs. This is
a variation on the full cost plus
pricing concept, in that the full cost
is charged to a product, but profit is
not necessarily factored into the
price (though it is likely to be). The
term includes the word "absorbed,"
because all costs are absorbed into
the determination of the final price.
Scaled Pricing
Scaled pricing allows users to select
from a range of price points that
correspond to their needs.
This model is particularly popular
with cloud and SaaS offerings.
Price Flexibility
You let the reseller or the sales person
modify the price according to an
agreed range.
Credit Terms
You allow consumers to pay for your
products at a later date.
Transfer Pricing
refers to the rules and methods for
pricing transactions within and
between enterprises under common
ownership or control. Because of the
potential for cross-border controlled
transactions to distort taxable income,
tax authorities in many countries can
adjust intragroup transfer prices that
differ from what would have been
charged by unrelated enterprises
dealing at arm’s length
Going Rate Pricing
Setting a price for a product or service
using the prevailing market price as a
basis. Going rate pricing is a common
practice with homogeneous products
with very little variation from one
producer to another, such as
aluminum or steel.
Auction Type Pricing
One of the types of pricing methods,
which is growing in popularity in
recent years especially with the
growth of Internet. A large number of
electronic market places are selling a
diverse range of products and services
by auctioning them though bidding
process. One major use of auction is
to dispose excess inventories or used
books. There are three major types
and each has its own separate pricing
procedures. These types are:
ascending bids, (English auctions)
descending bids (Dutch auctions), and
sealed bid auctions.
Dual Pricing
In simple words, different prices
offered for the same product in
different markets is dual pricing.
Different prices for same product are
basically known as dual pricing. The
objective of dual pricing is to enter
different markets or a new market
with one product offering lower
prices in foreign county.
Full Cost Pricing Method
Full cost plus pricing is a price-
setting method under which you add
together the direct material cost,
direct labor cost, selling and
administrative cost, and overhead
costs for a product and add to it a
markup percentage in order to derive
the price of the product. The pricing
formula is −
Pricing formula =
Total production costs − Selling and
administration costs – Markup
Predatory Pricing
Predatory pricing, also known
as undercutting, is a pricing
strategy in which a product or service
is set at a very low price with the
intention to achieve new customers
(Loss leader), or driving competitors
out of the market or to create barriers
to entry for potential new competitors.
Peak Load Pricing:
It is a pricing practice where price
varies with time of the day. When
demand for a commodity or service
varies at different periods of time, it
has been generally suggested that
higher price of a commodity or
service be charged for the peak period
when demand is greater and lower
price be charged for off-peak period
when demand is lower. This dual
pricing, that is higher price for peak
period and lower price for off-peak
period is known as peak-load pricing.
Internet Pricing Models:
The traditional pricing scheme of
putting a postage stamp on every
letter does not work with Internet.
The pricing models relevant in the
context of the new economy in
general and the Internet in
particular are described as follows:
i. Flat-Rate Pricing:
The Internet user is required to pay a
fee to ‘connect’ for a fixed period
during which one is not charged on
the basis of the ‘bits’ sent or received
each time.
ii. Usage-Sensitive Pricing:
This model looks like a two-part tariff
that utilities have—a part of the bill is
for the connection and the other part
is a price per unit of bit sent or
received. We could have the peak user
paying both parts and the off peak
user paying only one part. The
variable part could also be based on
connection time, speed of connection,
etc.
Pricing based on the number of
minutes of connection is a popular
basis of pricing and assumes that
usage, in terms of packets sent and
connection time are correlated, but
they need not be. The only
disadvantage of basing price on of units, a higher amount for the next
packets sent is that the cost of block, and so on.
implementing such a system is very
high.

iii. Transaction-Based Pricing:

This model is a variant of the usage-
sensitive pricing. In this model, the
pricing is ‘transaction’ based and not
usage based. The advantage of this
pricing model is its efficient
administering. However, we cannot
distinguish between different qualities
of service (quality of service being
gauged by band width).

iv. Priority Pricing:

In this model, the users pay according
to the quality of service chosen by
them. This comes close to the price-
discrimination model of the old
economy. Another variant of this is
the increasing block tariff used in
electricity pricing, wherein the user
pays a fixed amount for the first block

Fixed Priced Policies
setting one price for all buyers – a
modern idea that arise with the
development of large scale retailing
industries
Dynamic Pricing
the practice of charging different
prices depending on individual
customers and situations.
Market Position – depends on what
position they have on the market like
high priced or low priced.
Current Profit Maximization –
estimate what the demand and the
costs will be at difference prices and
choose the price that will produce
maximum current profit, cash flow or
ROI.
Market Share Leadership – they set
the prices as low as possible.
Product Quality Leadership –
charging high price to cover higher
performance quality and the high cost
of R&D.
Marketing Mix Strategy
Target Costing – pricing that starts
with an ideal selling price, then target
costs that will ensure that the price is
met.
Often the best strategy is not to charge
the lowest price but rather to
differentiate the marketing offer to
make it worth the price.
Cost
sets the floor for the price that the
company can charge for its product.
Fixed costs
Variable costs
Total costs
FIXED & VARIABLE COST
Fixed cost are cost that are paid
regardless of how much goods or
services is produced.
They are also known as sunk cost.
Variable cost are costs that depends
on the quantity of the goods or service
produced.
EQUILIBRIUM PRICE &
QUANTITY
This is the price when supply equals
demand.
Above the equilibrium price, fewer
people buy the goods and service
because the price is too high.
Below the equilibrium price,
consumers are willing to purchase
because of lower prices but suppliers
are not willing to produce.
GENERAL PRICING
APPROACHES & STRATEGIES
Return on Investment
Market Share
Demand Based
Cost Based
Competition
Time Based
Idea Pricing
RETURN ON INVESTMENT
Investment refers to the cost of
making and marketing a product
Return on Investment (ROI) is the
amount earned as a result of the
investment and is usually expressed in
percentage.
Entrepreneurs must identify the
percentage return they want from their
investment.
If you invest 5,000 on a fruit shake
stand and you want a 15% return per
month you need to price your product
so you can earn 750 per month.
MARKET SHARE
Is the business’s percentage of the
total sales generated by all companies
in the same market
The total market share must be known
in order for a market share to be
determined.
E.G.
If Iligan City generally spends
1,750,000 on gourmet food products
per month and your store sells these
products amounting to sales of
192,500 per month.
Amount of sales/Total Market Size =
Market Share
192500 / 1750000 = 11%
DEMAND BASED PRICING
Pricing determined by how much the
consumers are willing to buy.
COST BASED PRICING
Determined by using the cost of an
item as the basis for the price charged.
Also known as “mark-up” pricing
Cost x Percentage Mark-up = Mark-
up Amount
1.77 x 40% = 0.71
Cost + Mark-up Amount = Price
1.77 + 0.71 = 2.48
COMPETITION BASED PRICING
Pricing that is determined by
considering what competitors charged
for the same goods or service
TIME BASED PRICING
A type of pricing strategy for services
determined by the amount of time it
takes to complete the service.
PRODUCT MIX PRICING
STRATEGIES
Product Line Pricing – setting the
price steps between various products
in a product line based on cost
differences between the products,
customer evaluations of different
features and competitors prices.
Optional Product Pricing – the pricing
of optional or accessory products
along with a main product.
Captive Product Pricing – setting a
price for products that must be used
along with a main product,
By-Product Pricing – setting a price
for by products in order to make the
main product’s price more
competitive.
Product Bundle Pricing – combining
several products and offering the
bundle at a reduced price.
CAPTIVE PRICING
OPTIONAL PRICING
PRODUCT BUNDLE PRICING
OTHER PRICING STRATEGIES
Introductory Pricing
Discounts
Allowances
Psychological
INTRODUCTORY PRICING
Price Skimming – is used when the
product is new and unique by starting
to introduce the product at a high
price to recover the cost in developing
the product.
Penetration Pricing – is used when the Selling a product or service at two or
product is introduced at a very low more prices, where the difference in
price with the goal to penetrate the prices is not based on differences in
market. costs.

Customer Segment Pricing – different

prices offered to customers pay for
the same product or service.
Discounts
Product Form Pricing
A straight reduction in price on
Location Pricing
purchases during a stated period of
time. Time Pricing

Cash Discounts – a price reduction to

buyers who pay their bills promptly.
Psychological Pricing
Quantity Discounts – reduction to
a pricing approach that considers the
buyers who buy large volumes.
psychology of prices and not simply
Functional/Trade Discounts – offered the economics, the price is used to say
by the seller to trade channel something about the product.
members who perform certain
Reference Prices – prices that buyers
functions.
carry in their mind and refer to when
Seasonal Discount – price reduction they look at a given product.
to buyers who buy merchandise or
services out of season.
Promotional Pricing
Allowances
Temporarily pricing products below
Promotional money paid by
the list price and sometimes even
manufacturers to retailers in return for
below costs, to increase short run
an agreement to feature the
sales.
manufacturer’s products in some way.
Optional feature pricing

Segmented Pricing Many companies offer optional

products, features and services along
with their main product
Example: car feature
Two part pricing
Service firms engage in two part
pricing consisting of a fixes fee plus a
variable usgae fee. Telephone users
pay a minimum monthly fee plus
charges for call beyond a certain area.
Example, Amusement parks
A pricing strategy designed to
simplify a consumers buying decision.
Example: Daiso
Prestige Pricing
A pricing strategy that disregards the
unit cost of a product or service.
Instead, it capitalizes on the high
value perception or positive brand
reputation of a product or service.

By-product pricing

The production of certain goods-

meats, petroleum products, and others
chemicals often results in by-
products.

Product-bundling Pricing

Sellers bundles products and features.

Sellers normally charges less for the
bundle than the item were purchase
separately.

Loss leader pricing

A pricing strategy frequently utilized

by supermarkets. It is based on the
practice of housewives using only a
few selected essential products.
Example: sugar, coffee, eggs, laundry
detergents, and some canned good
products, as their sole basis for price
comparison. Sari sari store

Pricelining