PRICING METHODS

PRESENTED BY:
KAMALDEEP KAUR
GARIMA SINHA
SIMRAN CHAWLA
ABHILASH PANIGRAHI
NIKHIL MAHAJAN
ISHAN DHAWAN
NILESH TAHILRAMANI
PRICING METHODS
 Mark up pricing
 Target Return Pricing
 Perceived value pricing
 Good rate Pricing
 Value Pricing
 Auction Pricing
Mark up Pricing
 Markup is the difference between the
cost of a good or service and its selling
price .
 A markup is added on to the total cost
incurred by the producer of a good or
service in order to create a profit.
 Markup can be expressed as a fixed
amount or as a percentage of the total
cost or selling price.
 Mark up Pricing
Markup as a fixed amount
Assume: Sale price = Rs 2500,
Product cost is Rs 2000
Markup = Sale price – Cost
Rs 500 = Rs 2500 – Rs 2000

Markup as a percentage
•Cost x (Markup + 1) = Sale price
or solved for Markup = (Sale price / Cost) - 1
•Assume the sale price is $1.99 and the cost is $1.40
Markup = ($1.99 / 1.40) - 1 = 42%
Methods in mark up pricing
 Mark up on cost pricing method
Markup Amount = Markup Percentage
Item Cost
$15 = 30%
$50

 Mark up on selling price method.

Markup Amount = Markup Percentage
Selling Price
$15 = 23%
$65
MARKUPS IN SPECIFIC INDUSTRIES

oMarkups vary enormously from industry to industry.

o In some industries, the markup is only a small percentage

of the total cost of the product or service. Companies in
other industries, however, are able to attach a far higher
markup.
oSmall appliance manufacturers can sometimes assign
markups of 30 percent or more, while clothing is often
marked up by as much as 100 percent.
o Even within industries, markups can vary widely.

oThe automotive industry, for example, is usually limited to

a 5-10 percent markup on new cars, but it realizes a far
higher profit in the hugely popular sports utility vehicle
market, where markups of 25 percent or more are not
uncommon.
Target Return Pricing
 Pricing of a product / service, when
set to satisfy predetermined ROI
(return on investment) criteria, is
known as target return pricing.

 Setting price to ‘target’ a specified

profit level.
 Target Return Pricing
oSTEPS INVOLVED IN CALCULATING
THE TARGET COST:
o Identifying the price at which a product will be
competitive in the marketplace,
o Defining the desired profit to be made on the
product, and
o Computing the target cost for the product by
subtracting the desired profit from the
competitive market price.

The formula :Target Price - Desired Profit = Target Cost

 Target Return Pricing
oThe target pricing method is used most
often by public utilities, like electric and
gas companies, and companies whose
capital investment is high, like automobile
manufacturers.
oSelling price = investment costs× target return (%)+unit cost
# of units to be produced
Perceived Value Pricing
 In general, the value of something is
how much a product bundle is
worth to someone relative to other
things.
 often measured in money
 it can either be an evaluation of what
it could or should be worth
 or an explanation of its actual market
value (price)
A better measure of valuation
 It is better to look at the perceived
value of the product when trying to
explain why it is successful or not.
 Customer perceived value (CPV)
may be defined as the difference
between the prospective customer's
evaluation of all the benefits and all
the costs of an offering relative to
perceived alternatives.
 Perceived Value Pricing
 Perceived Value of a product means
the relationship between the
consumer's expectations of product
quality to the actual amount paid for
it.
 Value = Benefits / Price

or alternatively:
 Value = Quality received /
Expectations
 Proposed Perceived Value Equation

 Perceived value = Benefits gained from

the product – Price paid for the
product – Sacrifices made to purchase
the product.
 This includes qualitative and
quantitative measures.
 Psychological factors often play a major
role in the qualitative measures.
Going Rate Pricing
 In case of price leader, rivals have difficulty in
competing on price – too high and they lose
market share, too low and the price leader
would match price and force smaller rival out of
market

 May follow pricing leads of rivals especially

where those rivals have a clear dominance of
market share

 Where competition is limited, ‘going rate’

pricing may be applicable – banks, petrol,
supermarkets, electrical goods – find very
similar prices in all outlets
 Value Pricing

oStrategy that businesses with a high value

product or service use

oStrategy to sell the high value product or

service at a low, value price

oNote: this price is not to be below cost but at

what the customer would perceive to be a low
price

oPricing strategy is based on offering

customers high value at a low price.
 Value Pricing
oBusinesses using this strategy often re-
evaluate their pricing on brands (after losing
market share to more generic-type products)

oTo effectively use this strategy, it is necessary

to re-engineer the manufacturing process to
really find more economical ways to produce
the product at a lower cost.

oTo gain more sales for this product, the

quality and the features and benefits of the
product must be retained. Do not cut quality
to cut costs.
Value Pricing
Auction Pricing
 The auction pricing system is a
dynamic pricing model
 Using an auction pricing system,
sellers are not constrained by
having to fix a price without
knowing what the market will bare
(traditional pricing methodology).
Auction Pricing Strategies
 Few Dollars More Strategy
 One Dollar Less Strategy
 Free Shipping Strategy
 Go for It Strategy