Pricing Policies

Meaning of Pricing Policies,

Objectives of Pricing Policies,
Cost plus pricing.
Marginal cost pricing.
Cyclical pricing.
Penetration Pricing.
Price Skimming.
Price Leadership,
Transfer pricing.
 Introduction: General consideration.
• Kind of market structure
• Goal of Profit and sales maximization
• Long run welfare of the firm (discourage entry
of the rival through low price policy)
• Business objective i.e. survival, growth etc.
 Objectives of Pricing Policies
1. Rate of growth and sales Maximization
2. Market Share in oligopoly
3. Profit satisfaction
4. Market leadership
5. Market penetration
6. Marketing skimming
 Factors Involved in Pricing Policy
• Cost
• Demand and consumer Psychology
• Competition
• Profit and
• Government Policy.
 Cost Plus Pricing
• Concept
• Example
• Advantage
o Assured contract profot
o Simple
o Justifiable
• Disadvantage
o Ignores competition
o Ignore replacement cost.
Marginal cost pricing
 Cyclical pricing
• Cyclical Pricing refers to appropriate pricing strategy at different stages of
Business Cycle. Every Business Cycle consists of four phases: Recession,
Depression, Recovery and Prosperity. Contraction comprises of the first two
phases and the last two phases constitute expansion.
• The recession phase is basically the downturn phase of an economy, which is
characterized by decline in aggregate demand, wage rate etc. During recovery,
some macroeconomic variables including these above-mentioned variables
change, following the change in GDP.
• Business Cycles cause decline in aggregate economic activity, which results in
fall in purchasing power of the consumers. As a result of this, it is argued that
strategies are to be revised and appropriate pricing policies need to be adopted
depending on the phase of Business Cycle the economy passes through.
• There lies a difference in opinion regarding appropriate pricing policy during
various phases of Business Cycle. Experts are polarized in terms of
appropriateness of pricing policy. Here both the suggested policies are
presented:
1) Rigid Pricing
2) Flexible Pricing
 Penetration Pricing and Price Skimming

• Difference
• Benefit
• When to use
• Examples
 Penetration Pricing and Price Skimming

Penetration Pricing Price Skimming

 Benefits
Skimming benefits Penetration pricing benefits
• Maximized early revenue • Customer conversion
• Improved brand image • Improved brand loyalty
• Reduced competition
When to use skimming or penetration

When to use price skimming When to use penetration pricing

• Innovative product • Existing competition
• Target customer • Introductory campaign
• Unknown demand • Entry barriers
• Low price elasticity • High price elasticity
• Product portfolio • Existing market share
 Price Leadership
• Price leadership
• Types of Price Leadership
I. Barometric
II. Collusive
III. Dominant
• Advantages and Disadvantages of Price
Leadership