PRICING METHODS AND STRATEGIES INTERNAL FACTORS

PRICE �Product Cost

 It is the quantity of payment or compensation �Pricing objective
given by one party to another in return for �Product Life Cycle
goods or services �Image of the firm
� Credit period offered
� Promotional Activity
EXTERNAL FACTORS
�Competition
�Consumers
�Government Control
�Economic conditions

PRICING METHODS
PRICING OBJECTIVES The Pricing Methods are the ways in which the price of
1. PROFIT-ORIENTED goods and services can be calculated by considering all
► Target Return the factors such as the product/service, competition,
Sets a specific level of profit as an objective. target audience, product’s life cycle, firm’s vision of
► Profit Maximization To get as much profit as expansion, etc. influencing the pricing strategy as a
possible. whole.
2. SALES-ORIENTED
It seeks to boost volume or market share. TYPES OF PRICING STRATEGY
Sales Growth
Maximizing sales ignores profit, competition and the COST BASED PRICING
marketing environment as long as sales are rising. is a method to set the price of the goods or services
Growth in Market Share based on the cost .
To enjoy better economies of scale (more profits, lower
costs) TYPES OF COST BASED PRICING
3. STATUS QUO: "Don't rock the pricing boat" COST PLUS PRICING
Meeting Competition - Here manufacturer adds fixed percentage of the cost
To stabilize prices, or meet competition or even avoid to come up with the selling price.
competition MARK UP PRICING
Stabilize the Price - Here reseller adds a certain amount or percentage of
Prevents price wars between competitors. the cost to arrive the selling price.
BREAK EVEN COST PRICING
PRICING POLICY - A firm finds the price using a level of sales at which
It is the policy of a company or business that guides the fixed cost gets covered.
price setting of its goods and services that are offered TARGET PROFIT PRICING
for sale. - Target profit is set and selling price is calculated based
in target profit.
COMMON PRICING POLICY
One-Price Policy ADVATNGES OF COST BASED PRICING
►Offers the same price to all customers who purchase - It ensures that enterprise always generate profit
products under the same conditions and in the same Simple to understand and apply
quantities. -Covers all production and overhead costs
Flexible-Price Policy -Enables generating consistent margin
►Offers the same product and quantities to different -Useful to find cost of customized products
customers at different prices. -Helps companies to bid large project
DIS-ADVANTAGES OF COST BASED PRICING
FACTOR AFFECTING PRICE -Prices found here are different than market price
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 -Does not encourage to control the cost
-Sometimes ignore importance of customer
-Does not take opportunity cost of investment
-Does not take demand and competition
-Overlooking any cost may result in underpricing
Cost-Volume-Profit (CVP) Analysis
Also commonly known as breakeven analysis, is a
powerful tool that helps managers understand the
relationship among cost, volume and profit. It is a
mathematical equation businesses apply to see how
many units of a product they need to sell to gain a profit
or break even.
VALUE BASED PRICING
Is a price-setting where in a company relies on its
customer’s perceived value of the goods or services
being sold. Rather than according to the cost of the
product or historical prices.
COMPETITION BASED PRICING
It is a pricing strategy in which a company sets the price
for its products after observing the competition.
TARGET RETURN PRICING
A target return is a pricing model that prices a business
based on what an investor would want to make from
any capital invested in that company.
Target return refers to the future value, or profit, that
an investor expects from their investment.
Formula:
Target-Return Pricing = unit cost + (desired return x
invested capital) / unit sales
PRICE SKIMMING
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Price skimming is a product pricing strategy by which
a firm charges the highest initial price that customers
will pay and then lowers it over time.
As the demand of the first customers is satisfied and
competition enters the market, the firm lowers the
price to attract another, more price-sensitive segment
of the populace.
PENETRATION PRICING
Penetration is marketing strategy businesses to attract
customers to a new product or service by offering lower
price during its initial offering. The lower price helps a
new product or services penetrate the market and
attract customers away from competitors.
PENETRATION PRICING VS. SKIMMING
PENERATION
Setting low prices of products/services to rapidly
capture the market share.
Prices can be increased in the future.
Suitable for markets with high price elasticity that
increases sales with lower prices.
PRICE SKIMMING
Setting high prices of products/services to capture high
profits in the beginning.
Prices can be reduced in the future.
Suitable for markets with price inelasticity where
sales do not increase with a change in price.
PSYCHOLOGICAL PRICING STRATEGY
Strategy that uses pricing to influence a customer
spending or shopping habits to make more or higher
value sales.
6 TYPES OF PSYCHOLOGICAL PRICING
Charm pricing and odd even pricing
SLASHING THE MRSP Manufacturer suggested retail
price
ARTIFICIAL
TIME CONSTRAINT
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 ECONOMIC PRICING STRATEGY

Pricing strategy where products have lower prices due

to low production costs.

TWO FACTOR OF ECONOMIC PRICING STRATEGY

INNUMERACY

ADVANTAGES AND DIS-ADVANTAGES

Increase in Brand Awareness Competition

Low Costs Customer Disloyalty

PRICE APPEARANCE
Customer Acquisition Low Quality

DISCOUNTS PRICING
A pricing strategy that, for a limited time, will see a
merchant offers a lower price for a product than it's
FLAT RATE BIAS usual price.
QUANTITY DISCOUNTS
►Engage more sales because it's attracts customers to
purchase larger quantities.
LOYALTY DISCOUNTS
►It is often offered to the repeat customers to give
incentives on price or extra benefit or in discounted
rates for customers whole are loyal to the brand.

PROMOTIONAL PRICING STRATEGY BUNDLE PRICING

A sales strategy in which a seller or a brand temporarily A strategy where companies combine complementary
products or services together and offer them at a single
reduce the price of a product or services with the goal
(often reduced) price.
to attract more customer. EXAMPLE ,BOGOF (buy one PURE BUNDLING
get one free), Flash deals, Discounts, Multibuys, Loyalty  It gives customers the option to purchase the
card, Free shipping, Coupon. bundle as-is or not at all.
MIXED BUNDLING
ADVANTAGES AND DISADVANTAGES
 It does not give customers the ability to dictate
Increasing sales volume in a The calculation are more what products or services belong in the bundle.
short term complicated
However, they do have the option of purchasing the
Revenue growth Price orientation by customer
product/service together (at a lower price) or
increase inventory turnover Low perception by customers individually (at a higher price).
Maintain current customer
loyalty PREMIUM PRICING

Aims to display the quality and experience associated

with a product, in which a seller deems artificially high
prices for a product or More service.

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