UNIT -3

Pricing in Marketing
Definition: Pricing is the method of determining the value a
producer will get in the exchange of goods and services.
Simply, pricing method is used to set the price of producer’s
offerings relevant to both the producer and the customer.

Every business operates with the primary objective of earning

profits, and the same can be realized through the Pricing
methods adopted by the firms.

While setting the price of a product or service the following

points have to be kept in mind:

 Nature of the product/service.

 The price of similar product/service in the market.
 Target audience i.e. for whom the product is manufactured
(high, medium or lower class)
 The cost of production viz. Labor cost, raw material cost,
machinery cost, inventory cost, transit cost, etc.
 External factors such as Economy, Government policies, Legal
issues, ETC

SETTING THE PRICE

An organization goes through the following steps in setting its

pricing policy
1) Selecting the pricing Objective –
You would agree that the foremost step is identifying pricing
objectives. The company first decides where it wants to position
its marketing offering. The clearer a firm’s objectives, the easier
it is to set price. What are pricing objectives ? A company can
pursue any of five major objectives through pricing: survival,
maximum current profit, maximum market share,
maximum market skimming, or product-quality leadership.
Companies pursue survival, as their major objective if they are
plagued with overcapacity intense competition, or changing
consumer wants. As long as prices cover variable costs and
some fixed costs, the company stays in business. Survival is a
short-run objective: in the long run, the firm must learn how to
add value or face extinction.

What happens when companies wants to maximize profit ?

Many companies try to set a price that will maximize current
profits. They estimate the demand and costs associated with
alternative prices and choose the price that produces maximum
current profit, cash flow or rate of return on investment.
This strategy assumes that the firm has knowledge of its
demand and cost functions; in reality these are difficult to
estimate.

Some companies want to maximize their market share. They

believe that a higher sales volume will lead to lower unit costs
and higher long-run profit. They set the lowest price, assuming
the market is price sensitive. The following conditions favor
setting a low price. The market is highly price sensitive, and a
low price stimulates market growth. Production and distribution
costs fall with accumulated production experience; A low price
discourages actual and potential competition Companies
unveiling a new technology favor setting high prices to “skim”
the market. Sony is a frequent practitioner of market skimming
pricing.

Whatever the specific objective, businesses that use price as a

strategic tool will profit more than those who simply let costs or
the market determine their pricing

2) Determining the demand –

Following the identification of objectives , the firm needs to
determine demand. Each price will lead to a different level of
demand and therefore have a different impact on a company’s
marketing objectives. In the normal case, demand and price are
inversely related: the higher the price, the lower the demand .In
the case of prestige goods, the demand curve sometimes
slopes upward. E.g. Perfume Company raised its price and sold
more perfume rather
than less! Some consumers take the higher price to signify a
better product. However if the price is too high, the level of
demand may fall.

Do you agree that generally speaking customers are most

price-sensitive to products that cost a lot or are bought
frequently? They are less price-sensitive to low cost items or
items they buy infrequently. They are also less price-sensitive
when price is only a small part of the total cost of obtaining,
operating and servicing the product over its lifetime. A seller
can charge a higher price than competitors and still get the
business ifthe company can convince the customer that it offers
the lowest total cost of ownership (TCO).

The process of estimating demand therefore leads to

i. Estimating Price sensitivity of market
ii. Estimating and analyzing demand curve
iii. Determining price elasticity of demand.

3. Estimating Costs –
Demand sets a ceiling on the price the company can charge for
its product. Can you discuss this statement in detail. Costs set
the floor. The company wants to charge a price that covers its
cost of producing, distribution and selling the product, including
a fair return for its effort and risk.

Do you know different costs of organization? How are these

costs related with pricing? A company’s cost take two forms,
fixed and variable. Fixed costs (also known as overhead) are
costs that do not vary with production or sales revenue. A
company must pay bills each month for rent heat, interest,
salaries and so on. , Regardless of output. Variable costs vary
directly with the level of production. These costs tend to be
constant per unit produced. They are called variable because
their total varies with the number of units produced. Total costs
consists have the sum of the fixed and variable costs for any
given level of production. Average cost is the cost per unit at
the level of production; it is equal to total costs divided by
production.

To price intelligently, management needs to know how its costs

vary with different levels of production.

Do you want to know what the Japanese do?

The Japanede Method – TARGET COSTING – Costs change

as a result of a concentrated effort by designers, engineers and
purchasing agents to reduce them. The Japanese use a
method called target costing. They use market research to
establish a new product’s desired functions. Then they
determine the price at which the product will sell, given its
appeal and competitor’s prices. They deduct the desired profit
margin from this price, and this leaves the target cost they must
achieve.

4. Analyzing competitor’s costs, prices and offers –

You would agree that analyzing competitor’s costs, prices and
offers is also important factor in setting prices . Within the range
of possible prices determined by market demand and company
costs, the firm must take the competitor’s costs, prices and
possible price reactions into account.

While demand sets a ceiling and costs set a floor to pricing,

competitors’ prices provide an in between point you must
consider in setting prices. Learn the price and quality of each
competitor’s product or service by sending out comparison
shoppers to price and compare. Acquire competitors’ price lists
and buy competitors’ products and analyze them. Also ask
customers how they perceive the price and quality of each
competitor’s product or service. If your product or service is
similar to a major competitor’s product or service, then you will
have to price close to the competitor or lose sales. If your
product or service is inferior, you will not be able to charge as
much as the competitor. Be aware that competitors might even
change their prices in response to your price.

5. Selecting a pricing method –

Do you Know any pricing methods ? As consumers have you
been able to distinguish between pricing strategies ? Let us
have a look at various pricing methods.

WHAT ARE VARIOUS PRICING METHODS?

There are three pricing methods that can be employed by a

firm:
1. Cost Oriented Pricing
2. Competitor Oriented Pricing
3. Marketing Oriented Pricing

Cost Oriented Pricing

Companies often use cost oriented pricing methods when

setting prices. Two methods are normally used

Full cost pricing – Can you attempt to explain this? What does
a firm do here? Here the firm determines the direct and fixed
costs for each unit of product. The first problem with Full-cost
pricing is that it leads to an increase in price as sales fall. The
process is illogical also because to arrive at a cost per unit the
firm must anticipate how many products they are going to sell.
The is an almost impossible prediction. This method focuses
upon the internal costs of the firm as opposed to the
prospective customers’ willingness to pay.
Direct (or marginal) Cost Pricing – Do you have some idea
about this? This involves the calculation of only those costs,
which are likely to increase as output increases. Indirect or
fixed costs (plant, machinery etc) will remain unaffected
whether one unit or one thousand units are produced. Like full
cost pricing, this method will include a profit margin in the final
price. Direct cost approach is useful when pricing services for
example. Consider aircraft seats; if they are unused on a flight
then the revenue is lost. These remaining seats may be offered
at a discount so that some contribution is made to the flight
expenses. The risk here is that other customers who paid the
full price may find out about the discounted offer and
complain. Direct costs then, indicate the lowest price at which it
is sensible to take business if the alternative is to let machinery,
aircraft seats or hotel rooms lie idle.

Competition-based approach

Going-Rate Pricing – In going-rate pricing, the firm bases its

price largely on competitors’ prices, with less attention paid to
its own costs or to demand. The firm might charge the same,
more, or less than its major competitors. Where the products
offered by firms in a certain industry are very similar the public
often finds difficulty in perceiving which firm meets there needs
best. In cases like this (for example in financial services and
delivery services) the firm may attempt to differentiate on
delivery or service quality in an attempt to justify a
higher selling price.

Competitive Bidding – Many contracts are won or lost on the

basis of competitive bidding. The most usual process is the
drawing up of detailed specifications for a product and putting
the contract out for tender. Potential suppliers quote a price,
which is confidential to themselves and the buyer. In sealed-bid
pricing (i.e. only known to client and not to the other parties
tendering for the service), firms bid for jobs, with the firms
basing the price on what it thinks other firms will be bidding
rather than on its own costs or demand. All other things being
equal the buyer will select the supplier that offers the lowest
price.

Marketing Oriented Pricing

The price of a product should be set in line with the marketing

strategy. The danger is that if price is viewed in isolation (as
would be the case with full cost pricing) with no reference to
other marketing decisions such as positioning, strategic
objectives, promotion, distribution and product benefits. The
way around this problem is to recognize that the pricing
decision is dependent on other earlier decisions in the
marketing planning process. For new products, price will
depend upon positioning, strategy, and for existing products price will be
affected by strategic objectives.

6. Selecting the final Price –

Pricing methods narrow the range from which the company must select its
final price. In selecting that price, the company must consider additional
factors, including psychological pricing, gain and risk pricing, the influence
of other marketing -mix elements on price, company -pricing policies, and
the impact of price on other parties.

8 Steps Involved in Price

Determination Process
Some of the major steps involved in price determination process are
as follows: (i) Market Segmentation (ii) Estimate Demand (iii) The
Market Share (iv) The Marketing Mix (v) Estimate of Costs (vi)
Pricing Policies (vii) Pricing Strategies (viii) The Price Structure.

Decisions on pricing are taken in the light of marketing

opportunities, competition and many other valuables influencing
pricing.
The Price decision must take into account all factors affecting both
demand price and supply price.

(i) Market Segmentation:

In market segments, marketers will have firm decisions
on:
(a) The type of products to be produced or sold.

(b) The kind of service to be rendered.

(c) The costs of operations to be estimated.

(d) The types of customers or market segments sought.

(ii) Estimate Demand:

Marketers will estimate total demand for the product based on sales
forecast, channel opinions and degree of competition in the market.
Prices of comparable rival products can guide us in pricing our
products. We can determine market potential by trying different
prices in different markets.

(iii) The Market Share:

Marketers will choose a brand image and the desired market share
on the basis of competitive reaction. Market planners must know
exactly what his rivals are charging. Level of competitive pricing
enables the firm to price above, below or at par and such a decision
is easier in many cases.

Higher initial price may be preferred, in case of smaller market

share is anticipated, whereas, in the expectation of a much larger
market share for the brand, marketer will have to prefer relatively
lower price. Proper pricing strategy is evolved to reach the expected
market share either through skimming price or through penetration
price or through a compromise, i.e., fair trading or fair price- to
cover cost of goods, operating expenses and normal profit margin.

(iv) The Marketing Mix:

The overall marketing strategy is based on an integrated approach
to all the elements of marketing mix.

It covers:
(a) Product-market strategy

(b) Promotion strategy

(c) Pricing Strategy

(d) Distribution Strategy

Marketers will have to assign an appropriate role to price as an

element of marketing- mix. Promotional strategy will affect pricing
decisions.

The design of marketing mix can indicate the role to be played by

pricing in relation to promotion and distribution policies. Price is
critical strategic element of the marketing mix as it influences the
quality perception and enables product or brand positioning. Price
is also a good tactical variable. Changes in price can be made much
faster than in any other variable of marketing mix. Hence, price has
a good tactical value.

(v) Estimate of Costs:

Straight, cost-plus pricing is not desirable always as it is not
sensitive to demand. Marketing must take into account all relevant
costs as well as price elasticity of demand.

(vi) Pricing Policies:

Pricing policies are guidelines to carry out pricing strategy. Pricing
policy may be fixed or flexible. Pricing policies must change and
adopt themselves with the changing objectives and changing
environment.

(vii) Pricing Strategies:

Strategy is a plan of action to adjust with changing condition of
the– market place. New and unanticipated developments such as
price cut by rivals, government regulations, economic recession,
changes in consumer demand etc. may take place, and then changes
all for special attention and relevant adjustments in the pricing
policies and producers.
(viii) The Price Structure:
Developing the price structure on the basis of pricing policies and
strategies is the final step in price determination prices. The price
structure will now define the selling prices for all products and
permissible discounts and allowances to be given to distributor’s co-
dealers as well as various types of buyers.

Methods of Pricing: Cost-

Oriented Method and Market-
Oriented Method
The two methods of pricing are as follows: A. Cost-oriented Method
B. Market-oriented Methods.
There are several methods of pricing products in the market. While
selecting the method of fixing prices, a marketer must consider the
factors affecting pricing. The pricing methods can be broadly
divided into two groups—cost-oriented method and market-
oriented method.

A. Cost-oriented Method:
Because cost provides the base for a possible price range, some
firms may consider cost-oriented methods to fix the price.

Cost-oriented methods or pricing are as follows:

1. Cost plus pricing:
Cost plus pricing involves adding a certain percentage to cost in
order to fix the price. For instance, if the cost of a product is Rs. 200
per unit and the marketer expects 10 per cent profit on costs, then
the selling price will be Rs. 220. The difference between the selling
price and the cost is the profit. This method is simpler as marketers
can easily determine the costs and add a certain percentage to arrive
at the selling price.

2. Mark-up pricing:
Mark-up pricing is a variation of cost pricing. In this case, mark-ups
are calculated as a percentage of the selling price and not as a
percentage of the cost price. Firms that use cost-oriented methods
use mark-up pricing.

Since only the cost and the desired percentage markup on

the selling price are known, the following formula is used
to determine the selling price:
Average unit cost/Selling price

3. Break-even pricing:
In this case, the firm determines the level of sales needed to cover
all the relevant fixed and variable costs. The break-even price is the
price at which the sales revenue is equal to the cost of goods sold. In
other words, there is neither profit nor loss.

For instance, if the fixed cost is Rs. 2, 00,000, the variable cost per
unit is Rs. 10, and the selling price is Rs. 15, then the firm needs to
sell 40,000 units to break even. Therefore, the firm will plan to sell
more than 40,000 units to make a profit. If the firm is not in a
position to sell 40,000 limits, then it has to increase the selling
price.

The following formula is used to calculate the break-even

point:
Contribution = Selling price – Variable cost per unit

4. Target return pricing:

In this case, the firm sets prices in order to achieve a particular level
of return on investment (ROI).

The target return price can be calculated by the following

formula:
Target return price = Total costs + (Desired % ROI investment)/
Total sales in units

For instance, if the total investment is Rs. 10,000, the

desired ROI is 20 per cent, the total cost is Rs.5000, and
total sales expected are 1,000 units, then the target return
price will be Rs. 7 per unit as shown below:
5000 + (20% X 10,000)/ 7000
Target return price = 7

The limitation of this method (like other cost-oriented methods) is

that prices are derived from costs without considering market
factors such as competition, demand and consumers’ perceived
value. However, this method helps to ensure that prices exceed all
costs and therefore contribute to profit.

5. Early cash 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.

B. Market-oriented Methods:
1. Perceived value pricing:
A good number of firms fix the price of their goods and services on
the basis of customers’ perceived value. They consider customers’
perceived value as the primary factor for fixing prices, and the firm’s
costs as the secondary.

The customers’ perception can be influenced by several factors, such

as advertising, sales on techniques, effective sales force and after-
sale-service staff. If customers perceive a higher value, then the
price fixed will be high and vice versa. Market research is needed to
establish the customers’ perceived value as a guide to effective
pricing.

2. Going-rate pricing:
:

In this case, the benchmark for setting prices is the price set by
major competitors. If a major competitor changes its price, then the
smaller firms may also change their price, irrespective of their costs
or demand.

The going-rate pricing can be further divided into three

sub-methods:
a. Competitors ‘parity method:
A firm may set the same price as that of the major competitors

b. Premium pricing:

A firm may charge a little higher if its products have some

additional special features as compared to major competitors.

c. Discount pricing:
A firm may charge a little lower price if its products lack certain
features as compared to major competitors.

The going-rate method is very popular because it tends to reduce

the likelihood of price wars emerging in the market. It also reflects
the industry’s coactive wisdom relating to the price that would
generate a fair return.

3. 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.

4. 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 stratEGIES

ADAPTING PRICE –
Prices set by a company do not always remain the same. Over
time, the original price established for almost any product will
have to be adjusted. The marketing executive will find it
necessary to change the product’s price several times during
the course of its life cycle.

They are changed or adapted depending on the needs or

situations. A company needs to adapt its prices to different
situations, i.e., it may charge different prices depending on

The price of a company may be adapted following a number of

adaptation strategies. A company may choose one or more of these
strategies depending on the policies it decides to pursue.

Different price-adaptation strategies to be discussed here are;

1. geographical pricing;
2. price discounts, allowances, and promotional pricing;
3. discriminatory pricing; and
4. product-mix pricing.

1. Geographical Pricing

In addition to deciding what price to set for the product, a marketer

may also have to decide whether to charge different prices in different
geographic areas.

The basic issue confronting the executive here is recognizing that

market conditions and consumer sensitivities to price vary by
 geographic area. The difference in price occurs not only on wide
territorial bases but also between districts and even in different parts
of the same district.

Though such an exercise is very costly, the executive could segment

the overall market into tiny geographic areas and set unique prices in
each.

In geographic pricing, a company may charge variable prices

depending on the customers living at different locations or countries.

A company may charge a higher price to distant customers to cover

higher shipping and other costs or even charge a lower price to
increase sales. A company may follow different techniques with
regard to realize the money.

They are;

1. barter, compensation deal (receives some percentage in cash and rest

in products),
2. buyback arrangement (accepting partial payments through products
manufactured by the buyer), and
3. offset (receives full payments in cash but agrees to spend a substantial
portion in that country or region in buying products produced there).

2. Price Discounts, Allowances, and Promotional Pricing

The standard price established for the product by a marketer is list

price. But it is not always the actual price charged to the customer.

Here, basic prices are modified to reward customers for such acts as
early payments, volume purchases, and off-season buying and called
together discounts and allowances.

Marketers sometimes offer a discount or allowance to the buyers,

effectively reducing the product’s list price, making it more
competitive in the marketplace, stimulating short-term demand, or
creating product awareness.
 In order to attain any of these objectives, a marketer can choose from
a variety of discount and allowance methods. Some of the most
commonly used strategies are:

1. Quantity discounts.
2. Cash discounts.
3. Trade discounts.
4. Seasonal discounts.
5. Promotional allowances – loss-leader pricing, special-event pricing,
cash rebates, low-interest financing, longer payment terms, warranties
and service contracts, psychological discounting.
6. Forward dating.
7. Other allowances.

Quantity Discounts

Here a marketer reduces the list price based on the number of units
purchased.

It can be very effective at both consumer and middleman levels. This

type of discount is allowed to buyers who buy in bulk volume. This
discount again may vary with the quantity purchase.

A marketer can use two forms of quantity discounts, viz.

noncumulative and cumulative. A noncumulative quantity discount
applies to the number of units purchased in a single transaction at a
single point in time.

For example, a “3 for $1.00” price is actually a quantity discount

since the buyer will pay $0.50 for one unit, but $1.00 for three, a
savings of $0.50. At the middleman level, the marketing executive
will use a noncumulative discount.

Usually, larger purchases allow for economies of scale to process the

orders and transport them to the middleman.

On the other hand, the cumulative discount reduces the price based on
the number of units purchased within some time period.
Whether used at the consumer or middleman levels, its purpose is to
encourage buyer loyalty to the seller rather than gain large purchase
orders from them.

Cash Discounts

A cash discount is a reduction in the list price based on the buyer’s

early payment in cash. However, it is not used extensively at the
consumer level but is a widely adopted practice at the middleman
level.

Its basic purpose is to stimulate rapid payment and draw in precious

cash to the company. It is paid to customers who pay their bills
promptly.

For example, “5/15, net 30” means a customer has to pay his bill
within 30 days but will get a 5% discount if he pays within 15 days—
the biggest problems in offering cash discounts center on the
administrative burdens potential for abuse.

Some of the buyers may take the facility of discount but not pay
within the stipulated time, causing financial trouble for the company.

Trade Discounts

Reducing the product’s list price to an intermediary is called a trade or

functional discount. It is basically offered to the manufacturers’
channel members if they (channel members) perform certain functions
such as selling, storing, and record keeping.

It may vary from channel member to channel member depending on

the type and magnitude of functions performed by them.

Seasonal Discounts

Here the product’s list price is reduced in order to stimulate sales

during a particular time period.
 Such a discount may be given to the buyer to induce earlier than
necessary purchases of seasonally used products or to build sales
during traditionally off-peak periods. If a buyer buys a manufacturer’s
product in the off-season, he may be offered a seasonal discount by
the manufacturer.

This type of discount allows the seller to roll his product around the
year due to which he can keep his production going on throughout the
year.

Promotional Allowances

To encourage intermediaries to promote or otherwise display a

product, a marketer can offer a promotional allowance. If the buyer
allows a reduction on the list price to the seller, it can be termed as
allowance.

To ensure dealers’ participation in advertising and sales support

programs, sellers normally offer allowances.

In practice, this allowance can take one of several forms. Some of the
commonly practiced ones are discussed below.

1. Loss-Leader Pricing: More legitimate pricing techniques are known

as loss-leader selling, whereby the price is set below invoice cost in
order to reduce inventory size. To stimulate additional traffic to store,
supermarkets and department stores normally drop the price on well-
known brands. On the other hand, leader pricing is merely a reduction
from the going price, also intended to reduce inventory.
2. Special-Event Pricing: Special-event pricing involves advertised
sales or price-cutting to increase revenue or lower costs. To attract
more customers, sellers establish special prices in certain seasons,
such as the beginning of the month or the beginning of the year.
Special event pricing entails coordination of production, scheduling,
storage, and physical distribution. Whenever there is a sales lag, a
special sales event may be launched.
3. Cash Rebates: To clear their inventories, manufacturers normally
offer cash rebates if products are purchased within a specified time
period.
4. Low-Interest Financing: A company can offer low-interest financing
to customers instead of cutting its product price and thus can increase
sales.
5. Longer Payment Terms: Here, buyers are offered the opportunity to
buy the product in installments by charging a higher price of the
product.
6. Warranties and Service Contracts: By offering free or a reduced
price warranty or service, a company can promote its sales.

Forward Dating

Such discounts are offered to intermediaries. The marketing executive

will offer the products to the buyer and not charge for the goods until
a later date.

For example, the product may be shipped to a buyer in December, but

he won’t be billed until April. The advantage to buyers of this type of
price offer is that they can have the products and possibly sell them
before having to make the payment.

Thus, they do not tie up their funds in inventory. For the company,
sales are guaranteed, and production can be scheduled more
effectively.

Other Allowances

In addition to the above, marketers can also offer some other

discounts to their customers. Some of them are discussed here.
Rebates are cash refunds for buying the product.

They have been very popular at the consumer level. Trade-ins can
also be used by the marketing executive to discount the product’s list
price.

It is a price reduction given for used goods when similar new goods
are bought. By giving fair market value, or even more on a trade-in,
the executive can effectively change the actual price charged to the
buyer.
 Push money (PM) can sometimes be used by the marketer to support
particular products’ sales. Push money is funds passed down to retail
sales clerks to encourage them to emphasize the company’s product
instead of his competitors’ ones.

3. Discriminatory Pricing

To accommodate differences in customers, products, locations, and so

on, a company often modifies its basic price. Types of Discriminatory
Pricing are;

1. Customer-Segment Pricing.
2. Product-Form Pricing.
3. Image Pricing.
4. Location Pricing.
5. Time Pricing.

Customer-Segment Pricing

The same product may be sold at different prices to different customer

groups though the production costs are the same. For example,
students and freedom fighters may be charged half fare by transport
companies.

Product-Form Pricing

The product of a company may have different versions or sizes. In

such a situation, it may charge different prices for different versions
or sizes but not proportionately with respect to the product’s cost.

Image Pricing

Based on image differences, the price of the same product may be

fixed at different levels.

For example, a particular brand of one-liter soybean oil in the tetra

pack maybe charge $45/-. The same quantity of the same brand in a
glass bottle may be charged $70/- thus, the company is trying to
develop two different images of the same product.
 Location Pricing

Different prices may be charged for the same product sold in a

different location (geographic or other) though the cost of offering the
product is the same. For example, a cinema hall charges different
prices for a front stall, rear stall, or other types of seats.

Time Pricing

If prices are varied by season, day, or hour, it may be termed as time

pricing. Hotels, airlines, public utility companies such as DESA,
T&T, etc. normally practice time pricing.

4. Product-Mix Pricing

The logic of setting or charging a price on an individual product has

to be modified when the product is a member of a product mix.

Six situations may be distinguished involving product-mix pricing;

1. product-line pricing,
2. optional-feature pricing,
3. captive-product pricing,
4. two-part pricing,
5. byproduct pricing, and
6. product-bundling pricing.

Product-Line Pricing

If a company maintains a product line instead of a single product, it

may set various prices for a single product in the line to develop
different images in the minds of the buyer.

For example, an electronics company may carry 21 inches of color

television at three price levels. Customers will thus associate three
price levels with three types of quality.

Optional Feature Pricing

If a company offers optional products or features along with its main
products, it can go for optional-feature pricing.

For example, a hotel can charge a low price for accommodation and
charge high for car rental service being offered by it since guests
require transport service in addition to accommodation facilities.

Captive-Product Pricing

There are some products that require ancillary or captive products to

be used properly, such as a battery for battery-operated toys or films
for cameras.

Producers of main products may charge high prices for the captive
products and warning customers not to use ancillary products
manufactured by other companies for guaranteed performance.

Two-Part Pricing

This type of pricing is practiced mostly by service firms. They charge

a fixed price for the basic service and a variable usage fee for other
services.

For example, a museum may charge a fixed entry fee and variable
fees for seeing different objects or events. Normally the fixed fee is
charged low to encourage the purchase of the basic fee, which in turn
induce buyers to purchase other services.

Byproduct Pricing

Byproducts are sometimes an automatic outcome of the production of

certain items such as petroleum from a paint manufacturing plant.

A company can price byproducts low to increase its revenue and

support its main operation.

Product-Bundling Pricing

A seller may offer its bundle of products at a reduced price than the
individual prices added together.
For example, a tool manufacturer may combine a number of tools
together and price the bundle low compared to the individual gadgets’
total price. It will induce buyers to buy the bundle instead of buying a
particular one or two items and thus saving money.

geographic variation, variations in segments, purchase

timing, order levels, delivery frequency, guarantees, service
contracts, and some other factors.