What are pricing techniques

The pricing method you select provides direction on how to set your product price.

Pricing techniques
These techniques include :
• • • • Cost based pricing Demand based pricing Competition based pricing Affordability based pricing

Cost plus pricing ii.Cost-based pricing Cost-based pricing is where the price includes the cost of ingredients and cost of operating the business. Target profit pricing iv. Full cost pricing iii. This method can be sub-classified as : i. Marginal cost pricing .

. wholesaler's profit and the retailer’s profit. This fixed percentage of profits could be the manufacturer’s profit. a fixed percentage of profit is added to the cost.Cost-based pricing (i) Cost plus pricing Under this method.

total cost is computed by adding the variable and fixed cost incurred in the product manufacturing. the required margin of profit is added. On the total cost. administration and selling. . In it.Cost-based pricing (ii) Full cast pricing It is also called absorption cost pricing and uses standard costing techniques.

This required margin of profit is arrived at on a rational approach by keeping in mind the return on investment criteria rather than done arbitrarily as in full cost pricing method. . In it also the total cost is computed in the same manner and a required margin of profit is added. It is similar to full cost pricing but is different from it in some respects.Cost-based pricing (iii)Target profit pricing It is also known as rate of return pricing.

portion of the fixed costs is also realized. .Cost-based pricing (iv) Marginal cost pricing The marginal cost pricing aims at maximizing the contribution towards fixed cost. The marginal cost will include all the direct variable cost of the product. In addition.

Skimming pricing ii.Demand based pricing Demand based pricing is a system where the price is based on the customer ‘demand’ or need for the product. Penetration pricing . The following method belong to the category of demand based pricing: i. a value-based price may help create a demand for the product or service. If the product is unique or innovative.

As the word skimming indicates. The method is very useful in the pricing of new products. this method literally skims the market in the first instance through high price and subsequently settles down for a lower prices.Demand based pricing (i) Skimming pricing Skimming pricing aims at high price and high profits in the early stage of marketing. . especially the ones that have a luxury or specially element.

This can be done only by adopting a low price in the initial period or till such time the product is finally accepted by customers. .Demand based pricing (ii) Penetration pricing It is opposite of the skimming pricing. It is intended to help the product penetrate into markets to hold a position.

. 3. When stability of price is required.This method of pricing is desirable under the following conditions : 1. 2. When sales volume of the product is very sensitive to price. When a large volume of sales is to be effected.

Competition based pricing This pricing method is useful when the product is homogeneous and market is highly competitive. This pricing method includes : i. Discount pricing iii. the company tries to maintain the price of its products more or less at par with its competitors price. Tender pricing . Under this method. Going rate pricing iv. Premium pricing ii.

Competition based pricing (i) Premium pricing Premium pricing means pricing above the level adopted by competitors. . (ii) Discount pricing Discount pricing means pricing below the level adopted by competitors.

. It is more applicable to industrial products and the products or services purchased and contracted by institutional customers. Such customers usually go by competitive bidding through sealed tenders or by quotations. (iv) Tender pricing In this method the sellers tries to base the price of bid on the basis of the competitor’s price.Competition based pricing (iii) Going rate pricing it means matching competitors pricing.

.Affordability based pricing The affordability based pricing method is relevant in respect of essentials commodities which meet the basic needs of all sections of people. The idea here is to set prices in such a way that all sections of the population are in a position to buy and consume the products to the requires extent.

Key Factors Affecting the Pricing Decision Factors which can be categorized into two main groups:Internal Factors External Factors .

Costs . Marketing Objectives 2.Internal Factors 1.

Internal Factors Marketing Objectives  Return on Investment (ROI)  Cash Flow  Maximize Profits  Market Share .

Internal Factors Costs  Fixed Costs  Variable Costs .

Elasticity of Demand 2. Government Regulation 3. Customer Expectations .External Factors 1.

External Factors Elasticity of Demand  Elastic Demand  Unitary Demand  Inelastic Demand .

External Factors Government Regulation Customer Expectations .

References .

Thank you .