 Pricing method or strategy is the route taken

by the firm in fixing the price.

 The method/strategy must be appropriate
for achieving the desired pricing objectives.
 I. Cost Based Pricing
Types of cost based pricing
 1. Mark-Up Pricing(cost plus pricing)
 2. Target rate of return pricing
 3. Marginal cost pricing
 The selling price is fixed by adding Mark-up
or Margin to its cost.
 Price is set to cover costs and a
predetermined percentage for profit
 Usually used by:
◦ Distributers, Marketing firms etc..
 Problem faced by the firm is to adjust the prices
to change its cost
 Such situations firms used this method
 • The profit margin/ mark up is fixed by
considering the ROI.
 • Firm will have return objectives, like 5% of
invested capital, or 10% of sales revenue.
 • Then you arrange your price structure so as to
achieve these target rates of return.
 • Market leaders or monopolists uses this pricing
strategy.
 • It takes cost and demand into consideration
while fixing the price.
 Other method based on total costs, here fixed
costs are ignored.
 Price are determined on the basis of marginal
cost.
 • It aims at maximizing contribution towards
fixed cost.
 • It gives flexibility to recover the fixed cost
depending on the market condition.
 • It also gives flexibility in recovering a large
portion of cost from certain segment and a small
portion from some other segment.
 Types of Competition oriented pricing
 1. Going rate pricing
 2. customary prices
 3. sealed bid pricing
 Instead of cost here the importance is for
market.
 Firm adjust its own price policy to the pricing
structure in the industry.
 Price is charged in tune with the price in the
industry as a whole. When one wants to buy
or sell gold, the prevailing market rate at a
given point of time is taken as the basis to
determine the price
 Prices of certain goods are more or less fixed
for considerable period of time.
 Such goods changes in costs are reflected in
changes in quality and quantity, not in price
 Only when costs changes significantly, the
customary price of these goods are changed.
 Customary prices may be maintained even
when products are changed
 For example:- the new model of electric fan
may be priced at the same level as the
discontinued model.
 Tender pricing
 Industrial products
 This method is more popular in tenders &
contracts.
 Each contracting firm quotes its price in a sealed
cover called ‘tender’.
 All the tenders are opened on a scheduled date
and the person who quotes the lowest price is
awarded the contract.
 The seller can only get the best possible price.
 He should thoroughly analyze the competitors.