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13. What is pricing? Explain difference pricing methods.

Ans.
SYNOPSIS

Introduction:
 Meaning
 Definition
 Objective of Price Fixation

Fixation of Price:
 Policies
 Process

Pricing Methods:

 Cost Based Pricing


 Cost plus Pricing
 Marginal Pricing

 Competition Based Pricing


 Sealed Bid Pricing
 Going Rate Pricing

 Demand Based
 Different Pricing
 Perceived Pricing

 Strategy Based Pricing


 Limit Pricing
 Skimming Pricing
 Penetration Pricing
 Two Part Pricing
 Block Pricing
 Commodity Pricing
 Peak Loading Pricing
 Cross Subsidization
INTRODUCTION:

Pricing: Pricing is a significant role in competitive economy. A good Pricing Policy is a


greater importance to the manufactures, wholesalers, Retailers and the Customers. If the
prices are High, few buyers purchase and if the price is low, many buyers purchase the
product. Thus market may be reduced or increased through Prices.

Definition: Price is the value fixed expressed in currency for the exchange of products
and services.

Objectives of Price Fixation:

1. To Earn a Decided Profit


2. To Increase the Sales
3. To Increase the Share Value in the Market
4. To withstand the competition

F IXATION OF PRICE:

Pricing policies:

The firm has to formulate its pricing policies, particularly when it deals in multiple
products. The pricing policies are intended to bring consistency in the pricing pattern. For
instance, to maintain price differentials between the deluxe models and so on. Pricing
policy defines how to handle complex issues such as price discrimination and so forth.

Process Identifying the Objectives of the Company

Market Objectives Identification

Selecting the Pricing Method

Review the Set Price

Feed-Back
PRICING METHODS:
Cost based pricing:

Based on the cost of the production of a product, the price is fixed. There are many types
of costs used such as variable cost, fixed cost, total cost, average cost and marginal cost.

Methods of determining prices on the basis of cost or below:

1. Cost plus pricing:


When a profit margin is added to the total cost to arrive at the selling price i.e.
T = per unit cost + profit

E.g.: per unit cost = rs.10/-


Profit margin = 15%. Find the pricing of product.
P = 10 + 10 @ 15% = 10 +10 * 15/100 = 11.5.

2. Marginal cost pricing:


Under marginal cost pricing fixed cost are ignored and prices are determined on the basis
of marginal cost.

Competition based pricing:


Based upon the competition in the market, the prices are fixed which are as follows.

1. Sealed bid pricing:


Where the buyers port their prices in the sealed cover, who ever quotes lower price will
be considered as the price of the product.

2. Going rate pricing:


It refers to pricing the product as per the rate prevailing in the market
E.g.: commodities.

Demand based pricing:


Based up on the demand for the product the prices are fixed.

1. Differential pricing:
It refers to where the seller has the ability to offer the products and services at different
prices to the customers of different profiles.
E.g.: Sims

2. Perceived pricing:
It refers to where the prices are fixed on the basis of the perception of the buyers, the
value of the product is fixed.
Strategy based pricing:

1. Limit pricing:
A price reduces or eliminates the threat of entry of new firms in the industry.

2. Skimming pricing:
It refers to the practice where the products are offered at the highest price than that
indicated economic analysis for a new product.
E.g.: branded products (foreign brands).

3. Penetration prices:
It refers to the practice where the products are offered at the lowest price than that
indicated by economic analysis for a new product.
E.g.: local brand.

4. Two part pricing:


The firm may charge the customer in two parts; at the time of admitting the customer as
the member and at the time of services.
E.g.: clubs.

5. Block pricing:
Certain no of units of the product is offered as a package with a special price in such a
way that there is a customer surplus.
E.g.: santoor soap.

6. Commodity bundle:
Two or more different products are bundled together and offered for sale at a single
bundle price.
E.g.: med plus first aid box.

7. Peak load pricing:


Where charges for the product or charged in relation to the demand fluctuations i.e. the
higher the demand is the higher the price charger.

8. Cross subsidization:
If a firm has demand for two or more products, it may be enhance its overall profitability
by utilizing the profits from a particular product, to expand its activities by product
development and diversification or any other.
E.g: Reliance

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