METHODS

OF PRICING

Tanveer Kaur, M. Com, 6205

PRICING
Introduction
 Pricing method or strategy is the route taken by
firm in fixing the price.
 The method must be appropriate for achieving
the desired pricing objectives.
PRICING
MEANING AND DEFINITION
Pricing is the art of translating into
quantitative terms, the value of the
product or a unit of a service to
consumers at a point of time.

"Pricing is a managerial task that involves

>>Establishing pricing objectives
>Identifying the factors governing the price
>ascertaining there relevance and significance
>determining the product value and
formulation of price policies and strategies
>implementing them and controlling them for
the best results. "
Prof. K. C. Kite
METHODS OF PRICE DETERMINATION

Cost based
01 02
Competition
based

Demand 03
based
COST BASED PRICING METHOD
 COST PLUS PRICING METHOD :
 Cost plus or target or mark-up pricing involves simply adding a
percentage of cost to arrive at the price.
 Mark-up pricing is an addition of profit calculated as a percentage of
sales rather than as a percentage of cost.
 TARGET RETURN PRICING :
 It is based on break even analysis.
 It sets the price at a desired percentage return over
and above the break even point.
 The cost of producing and offering for sale is
determined and a target percentage return is then
added to these costs at a given standard output level.
COMPETITION BASED METHOD
 GOING RATE PRICING :
 It is the method of setting the prices in relation to the price of competitor.
 Less attention paid to its own cost or demand.
 The firm may charge the same, more or less than the major competitors.
 Used for homogeneous products /oligopolistic market.
 SEALED BID PRICING :
 In all those business line where the firms bid for job,
competition based pricing is followed rather than its
costs and demand.
 The firm fixes its price on how the competitors price
their products.
 To win a contract or a job, it should quote less than the
competitor.
 It cannot price below the cost.
 On the other hand, higher price above its cost reduces
the chances of winning the job.
 The net effect of the two opposite pulls can be well
described in terms of "expected profit" of a particular
bid.
0
DEMAND BASED PRICING METHODS
 DEMAND MODIFIED BREAK EVEN ANALYSIS :
 It is that method which sets the price to achieve highest profit(over
break even point) in consideration of the amount demanded at
alternative prices.
 This method requires estimate of market demand at each feasible
price, break even points and expected profits levels of total sales
revenue can then be calculated.
 The basic challenge is one of getting accurate estimates of the price
and the quantity demanded relation.
 This approach can be used both in case of existing and new products
and it guarantees greater validity.
 PERCEIVED VALUE PRICING :
 Many firms are setting their product price on the basis of perceived value
of a product.
 It is the buyer's perception of value and not the seller's cost which is the
key to the product pricing.
 This approach fits well within the thinking of product positioning.
 The willingness of customer to pay a higher price depends on their
perception of the fairness of the price of the quality they get for the price
they pay.
 Example : If a competitor is selling his tractors at Rupees say Rs. 80000
and you are selling at Rs. 90000 you must convince your customers as to
why he should pay more to the extent of Rs. 10000.
Market research is needed to establish the market's
perception of value as a guide to effective pricing.
CONCLUSION
The companies resolve pricing issue by
selecting a pricing method that incorporate
cost, competition and demand factors. The
choice of a particular method, however,
depends on the pricing needs and decision
input barriers encountered by the
management.
 RESALE
PRICE
MAINTENANCE
 MEANING
 Resale price maintenance is the
marketing policy whereby the
manufacturer known for their
branded products place restrictions
on the price at which the products
shall be sold by the buyer and sub-
buyers from them.
 It is the policy of establishing the
minimum resale price below which a
wholesaler or retailer may not sell the
manufacturer's products.
 ADVANTAGES OF RESALE PRICE
MAINTENANCE

Reduction of excessive price Discouragement of

cutting Substitution

Protect against over-charge Eliminate price competition

DISADVANTAGES OF RESALE PRICE MAINTENANCE

Protect inefficient Encourage higher

retailers prices

Increase the cost of

living
CONCLUSION
It is concluded from the information that the resale price
maintenance protect customers from over-charge and
maintain the prestige of brand as well as encourage higher
prices and increase the cost of living.Government of India has
proclaimed all kinds of resale price maintenance as illegal
under section 39 of the Monopolies and Restrictive Trade
Practices. It is because, these cannot be justified on
economic and social grounds.
THANKS