The University of Lahore (Islamabad Campus)

Lahore Business School

Marketing Management
Bachelor of Business Administration

Semester: V
Instructor: Sumaira Irshad Email:sumaira.irshad@lbs.uol.edu.pk

Course Code: MKT05206 I 12 Course Cr. Hrs.: 3

Assignment

Think of all the pricing methods. As a consumer, which pricing method do

you personally prefer to deal with? Why?

Company seeks to maximize its income while determining the market value of a new
product. In this article, we described how to do it right in detail. You will learn the six basic
methods of pricing. Each pricing approach has its own characteristics, advantages, and
disadvantages. Each described method for calculating the optimum rate is used in practice,
but an ideal one for you depends on the principles of process management in your company.
So read, learn, and choose the best practice for your business.
In marketing, there are six main pricing methods, the two of which are methods of calculating
prices based on the cost of the product (cost-oriented pricing), and four other pricing models
are based on the factors of market environment (market-oriented pricing).

1. CUSTOMER PERCEIVED VALUE PRICING

Perceived value pricing method is based on market research of consumer perception of the
product price. The method incorporated the assumption that the consumer would consider an
acceptable value of the goods if the price were the same as their conception of it. In other
words:
If the price of goods is too low (according to the consumer) – the consumer refuses to make a
purchase, as he/she will doubt the quality of the goods
If the price of goods is too high (according to the consumer) – the consumer refuses to make
a purchase, as he/she will not agree to pay that price
If the price of goods will correspond to the cost of the consumer concepts – the probability of
a purchase will be the maximum.
2. PRICE BARRIER PRICING
The method is based on the assumption that the consumer forms a representation “on an
acceptable price of the product based on price clusters. Each cluster is a price corridor,
“from-to”, and according to the consumer has certain characteristics. The concept of price
clusters (or price barriers) is formed in the minds of the target audience as a result of the
accumulation of purchase experience.

3. COMPETITOR-BASED PRICING
Competition is the main growth driver for any online business. This pricing method is a
method, when the company sets the price, focusing on the cost of competitive products. In
other words, the company establishes the principles of price positioning according to their
competitors’ prices and follows them when calculating the price of the product. The cost
price of the product, in this case, is secondary and depends on the target price of the product.
Principles of price positioning may be as follows:
Product price is x% higher than that of competitor A; x% lower than that of competitor B;
The price of a product is always x $ lower than that of competitor C.
Tip: Why not compete with yourself? Price anchoring is the practice of establishing a price
point which customers can refer to when making decisions. This way, every time a consumer
sees a 25% discount like ̶$̶1̶0̶0̶ , the $100 is the price anchor for the $75 sales price. Another
psychological trick that works great for all

4. GOING-RATE PRICING
This market-oriented pricing method is used to establish prices for similar product markets.
In such markets, the differences in the product are minimal or the consumer buys goods only
for their basic characteristics and is not ready to pay more for additional features or
conditions. Accordingly, the consumer chooses the product with the lowest cost. (For
example, the market of aluminium or steel, matches, toothpicks, etc.)
The going rate pricing method is, in fact, is the method where the product price is assigned to
the prevailing market price. If the difference between the prices on the market is not great –
the arithmetic mean value is taken.

5. CONTRIBUTION PRICING
Let’s proceed to the cost-oriented methods of pricing.
The first method is contribution pricing and it is inextricably linked with the concept of the
break-even point. The idea of this concept is to establish such a level of prices, that will cover
the cost of production of the product. Thus, the starting point for determining the price is the
target profit from the sale of products.
An example of the formulation of the target profit for calculating the price of the product: the
total profit from the sale of the new product should be no higher or equal to the costs of the
company.

6. MARK UP PRICING
The main principle of this method is to establish a fixed percentage of income that you expect
to earn from the sale of 1 unit. In other words, according to this method, the price for a
product or service must ensure receipt of a fixed level of profitability at the existing level of
variable costs.