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Pricing Methods

By Karan Shah (140) Shweta Shinde (152) Sanmeet Surve (160) Kiran Uikey (171) Akanksha Wattal (176)

Steps in setting up a price


1. 2. 3. 4. Selecting the pricing objective Determining Demand Estimating Cost Analyzing Competitors Costs, Prices, and Offers 5. Selecting a Pricing Method 6. Selecting the Final Price

Pricing methods
Markup Pricing Going-rate Pricing Target-Return Pricing Perceived Value Pricing Value Pricing Auction-Type Pricing Psychological Pricing Group Pricing

Markup Pricing
Most elementary method of pricing Standard markup added to the products cost Calculation : For 30% markup price Markup price = Unit cost 1 desired return on sales Where, Unit Cost = Variable cost + fixed cost Unit sales

Markup Price
Products with the biggest markup pricing: Prescription medicine have the highest markups. Movie theater popcorn/candy. Branded clothing Restaurant drinks (hard drinks and soda) Packaged drinking water

Going rate pricing


The product is priced on the basis of the prevailing market price. Mostly applicable for the homogeneous products with little variations. eg. Aluminum, Steel, Plastic products It is used where less competition is required. eg. Bank, Supermarkets, Soft drinks

Target rate of Return Pricing


It determines the price that would yield its target rate of return on investment (ROI). Target-return price= Unit cost+(Desired Return x Invested Capital) Unit Sales Electric and Gas companies Automobile manufacturers like General motors, Hyundai

Perceived value pricing


Based on customers perceived value i.e how much customers are willing to pay for it Perceived value elements Key-to deliver more value than competitor Lifetime operating costs will be low Example-Apple

Value pricing
To win loyal customers by charging low price for a high quality offering Reengineering companys operations To attract large number of value-conscious customers Major trend in the computer industry Example- McDonalds

Auction Pricing
English auctions Ascending bids eg. IPL , Ebay Dutch auctions Descending bids eg. IPO shares , Passing a tender

Sealed-bid auctions bidding price is not revealed

Psychological Pricing
Price based on human Psychology Prefers 2 digit number over 3 digit and so on Price ending with an odd digit Use words like special , sale Packaging style

Group Pricing
Consumers and or business buyers join groups to avail off volume discounts Groceries for purchases like poultry, frozen meat, dairy and bakery etc. Construction companies

Group Purchasing Organization


Entity created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members Healthcare GPO, Foodservice GPO, Industrial manufacturing GPO