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SYNOPSIS
Introduction:
Meaning
Definition
Objective of Price Fixation
Fixation of Price:
Policies
Process
Pricing Methods:
Demand Based
Different Pricing
Perceived Pricing
Definition: Price is the value fixed expressed in currency for the exchange of products
and services.
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.
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.
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.
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.
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