FLASHBACK NOTES// CLASS XII

MARKETING// TOPIC: PRICE

MEANING OF PRICE
According to Philip Kotler, “Price is the amount of money
charged for a product or service.”, similarly according to
William Stanton “Price is the amount of money needed
to acquire some combination of goods and its companying
services.”

ASPECT OF PRODUCTION CONSIDERED FOR SETTING PRICE

Aspects of production to be considered for setting price

Brand and
Price of raw Cost of Market Competition in
quality of
material manufacturing Conditions the market
product

1. Price of raw material- The firm considers price at which it

could acquire the goods and raw material to prepare final
product to be sold in the market. A higher cost of acquiring
these implies a higher product-price and vice versa.

2. Cost of manufacturing- If manufacturing cost is higher,

the price of product will also be higher, whereas lower
manufacturing cost leads to lower price. This cost includes
the wages of labour, expenses on power and other overheads
during manufacturing

3. Market condition- When market has positive sentiment

i.e. high demand for goods and services because of high
incomes and purchasing power of consumers, companies set
higher prices for their products. On the contrary when there
is depression or negative sentiment due to lack of demand in
market, price is also kept low by firms.

4. Competition in the market- If there is no other firm in the market

offering similar product, the firm may set a higher price for its product
or service, but if there are many market players for the same product,
the price will be kept competitive. For example, Airtel initially kept
high prices for its mobile services, but by entry of Vodafone and Idea
services prices have been slashed.
5. Brand and quality of product- A higher brand-value and
better quality corresponds to a higher product price in the
market. For example, a simple jewellery store in the Chandni
Chowk market of Delhi will set price its ornaments based on
cost of gold/silver and making charges. But a high-end
jewellery store such as Kalyan Jewellers will price similar
ornaments at a much higher price owing to its brand-value and
reputation in the market.

OBJECTIVES OF PRICING
The objectives of pricing are as follows:

Objectives of Pricing

Public Relation's
Profitability Objectives Market-Related Objectives
Objectives

Target Rate of Return Meeting or Preventing

Enhancing Public
on Investment or Net competition in the
Image of the Firm
Sales Market

Maintaining or
Profit Maximization Improving Market Resource Mobilization
Share

Price Stabilization

1. PROFITABILITY OBJECTIVES:
→Target Rate of Return on Investment or Net Sales
This is an important goal of pricing policy of many firms. In this, the
price represents cost of production and profit margin. The basic
objective is to build a price structure to provide sufficient return on the
investment or capital employed.
 →Profit Maximization
In practice, no firm expressly states this as an objective for fear of
public criticism. In recent times though, the business philosophy
has changed. Businessmen have started to think from the
perspective of society instead of only focusing on maximizing
profits, and have incorporated business with other activities which
help fulfil their societal obligations.

2. MARKET-RELATED OBJECTIVES
→Meeting Or Preventing Competition In The Market
Some firms adopt pricing policies to meet or prevent competition in the
market. They are ready to fix their prices at a competitive level to meet
competition in the market. They even follow “below cost pricing”, that
is, charge less than the cost because they believe it will prevent new
firms from entering the market.

→Maintaining or Improving Market Share

This pricing objective is followed by firms operating in expanding
markets. When a market has a potential for growth, market share is a
better indicator of a firm’s effectiveness than target return on
investment. A firm might be earning a reasonable rate of return on
investment or capital employed but its market share could be
decreasing.

→Price Stabilization
Price Stabilization as an objective is prevalent in industries that have
a price-leader. For example, in an oligopoly, there are only a few
sellers which follow one big seller who acts as the price leader, and
try to stabilize their prices simultaneously. No firm is willing to
engage in price wars. They may even forego maximizing profits in
times of prosperity or short supply in order to stabilize prices.

3. PUBLIC RELATIONS’ OBJECTIVES

→Enhancing Public Image of the Firm
A company’s public image is important to its success.
Suppose a company with an established reputation in the
market based on existing products and price lines
introduces a new product to a different market segment.
This new product could be at a higher or lower price. If this
segment hasn’t tried the product but is aware of its prestige
and brand-value, it might desire to purchase its products because price is no longer a
deterrent factor.
→Resource Mobilization
Resource Mobilizing means the creating resources for either self- development or
reinvestment in the firm. Prices are deliberately set high in certain cases to generate
surplus for reinvestment in the same firm or its sister concern. This objective of price is
mostly found in the developed countries where it add to the exchequer (former
government department in charge of national revenue) for reallocation.

IMPORTANCE OF PRICING

To determine the
To determine the
product positioning
quality and variants
and distribution in
in production
the market
To establish
To determine the
consistency with the
quantum of
other variables in the
production
marketing mix

Helpful in
To achieve the maintaining system
financial goals of the of free enterprise
company and long run survival
of firms

To determine firm’s
Importance
Improvement in
Competitive Position
and Market share
of Pricing company’s image
for Firm

A. IMPORTANCE OF PRICING FOR FIRM-

1. To determine firm’s Competitive Position and Market share-

Pricing Policy of a firm is a major determinant of a firm’s
success as it affects the firm’s competitive position and share in
the market. If prices are too high, the business is lost. If prices
are too low, the firm may be lost. The wrong price can also
negatively affect sales and cash flow to the firm.
 2. To achieve the financial goals of the company-
Price has an important bearing on the firm’s financial
goals, i.e. Revenue and Profit. For a given level of
production, higher price means a higher revenue and
higher profitability (revenue minus costs).With the
help of price; a firm can make estimates of expected
revenue and profits.

3. To determine the quantum of production –

Price also helps in determining the quantum of production which
should be carried out by the firm. The management of a firm can
make estimates of profit at different levels of production at different
prices and can choose the best combination of production, volume,
and price.

4. To determine the product positioning and

distribution in the market
The sale of product is supported by extensive
advertising and promotional campaigns. What type
of promotional techniques is to be used and how
much cost will be incurred, these decisions depend
upon prospective revenues of the firm, which again
are influenced by the product price.

5. To determine the quality and variants in production-

Before setting the price, managers try to explore ‘Will customers buy
the product at that price?’ to fit the realities of the marketplace. This
helps them to determine various product models that can be
produced to fit different market segment, e.g. Samsung offers
Samsung Grand for a medium-income group and Galaxy S7 Edge for a
high-income group of consumers.

6. To establish consistency with the other

variables in the marketing mix-
Pricing decisions and policies directly influence the
nature and quality of product, its packaging,
promotion policies, channels of distribution etc. There
is no doubt that the nature and type of product,
promotion and distribution policies of the firm are
influenced by the price-policy of the firm.
 7. Helpful in maintaining system of free
enterprise and long run survival of firms-
Pricing is the key activity in the economy of a
country which permits system of free enterprise.
It influences factor prices, i.e. Wages, interest,
rent and profit, by regulating production and
allocating resources in a better way. The firms
which are not able to market their products at
good prices cannot survive in the long run as
they are not able to pay for various factors of
production. So pricing weeds out inefficient firms and shows way to long run survival.

8. Improvement in company’s image-

A company’s image is important to its success and pricing
helps to make that image. A firm with an established
reputation for quality at existing price lines may introduce a
new product at either higher or lower prices to attract
different market segments. Buyers who are aware of its
prestige might desire to purchase its products because price
no longer remains a limiting factor for them.

B. IMPORTANCE OF PRICING TO CONSUMERS-

1. Helpful in decision-making 2. Helps in satisfaction of needs

IMPORTANCE OF PRICING TO
CONSUMERS

3. Helps determine the

purchasing power and standard 4. Enhancement in social welfare
of living of the consumer
1. Helpful in decision-making-
Goods and services offered by various producers at different
prices help the consumer to make rational and informed
buying decisions. For example, a person may choose to buy a
T.V. from one shop which offers the product at Rs 20,000 or
from another shop which offers the same T.V. at Rs 21,500
but gives free-repairs-service for five years.

2. Helps in satisfaction of needs

Goods and services offered by different producers at
different prices help the consumer to take that buying-
decision which will give him/her maximum satisfaction. By
making a market survey and comparing the prices of
different variants available vis a vis his budget, the
consumer tries to make the best choice. It gives him value
for his money spent, and maximizes his satisfaction and
welfare.

3. Helps determine the purchasing power and standard of

living of the consumer-
If a consumer purchases expensive, luxury items, it implies that
he/she has a higher purchasing power and enjoys good standard
of living. On the other hand, if a consumer purchases only low-
priced, essential items, then he/she has a lower purchasing power
and standard of living. This tendency generally persuades
consumers to buy branded goods to flaunt their status.

4. Enhancement in social welfare

Pricing decisions affect the competitive strength of the firm
in the market. Since each firm tries to outsell others through
price reduction and better quality production competitive
market, consumers are benefitted. In this way, quality goods
are available at competitive price which maximizing social
welfare in society.
FACTORS AFFECTING PRICE

FACTORS AFFECTING PRICE

Internal Factors External Factors

Objectives of the firm

Role of Top Management

Demand
Cost of the Product
Buyers Behaviour
Product Differentiation
Competition
Marketing Mix
Raw Material or Input suppliers
Size of the organization
Prevalent Economic Conditions
Location of the organization
Government Regulations
Nature of Goods

Promotional programs
INTERNAL FACTORS AFFECTING PRICING
Internal factors are the forces which are within the control of a firm up to certain extent.
The firm can regulate and change these factors as per requirement

1. Objectives of the firm: A firm may have various

objectives and pricing contributes in achieving them. Firms
may pursue different objectives such as maximizing
revenue, maximizing profit, maximizing market share or
maximizing customer satisfaction. The Pricing policy
should be established only after clear consideration of the
firm’s objectives.

2. Role of Top Management: Usually, it is the top

management that takes a firm’s pricing decisions. But pricing
activities are so crucial for future sales and profits that a
marketing manager has to remain involved with the pricing.
The role of the marketing manager is to assist the top
management in price-determination and ensure that pricing
takes place within the policies laid down by top-management.

3. Cost of the Product: There is a direct relation between the cost of

production and price of a product. If the cost of acquiring material and
manufacturing cost of the product are high, the price of the product in
the market will also be higher and vice versa. The firm should also fix
prices that are realistic, considering current demand and competition
in the market.

4. Product Differentiation: The price of a product

also depends upon its specifications. Generally,
producers add more and more features to their
products to attract customers, and the customers pay
a price for them. Therefore, a highly differentiated
product will have more features and attributes, and a
higher price than one which is less-differentiated.
5. Marketing Mix: Price being an important element of the
marketing-mix must be coordinated with the other
elements- product, place and promotion. The price should
be such that it covers the expenses on the other elements
of the marketing mix and corresponds to them ideally. For
example- a high-priced branded electronic product should
be sold in high-end urban showrooms instead of rural
markets; the promotion technique should be TV-
advertising and not personal-selling, etc.

6. Size of the organization: If the size of firm is big and the

scale of production is large, it can afford to set lower
product price and increase its sales. On the other hand
small sized firm keep high price of its products.

7. Location of the organization: Location of the

organization is an important determinant of the price of a
product. The price and product-size will vary depending
upon whether the market is located in a rural or urban
area. For example, in the kirana stores in smaller towns
and villages, one will find the Rs 1 or Rs 2 shampoo-sachets
instead of a big 200ml or 250ml bottle found in
departmental stores.

8. Nature of Goods: If product is necessity good, firm may set a

moderate price keeping in view social welfare purpose; but if the
product is luxury good in nature and is being demanded by high
end consumers; its price will be high.

9. Promotional programs: The extent of promotional

programs and advertisement expenditure also influence the
price of a product. If it is huge, the product will have high
price and vice-versa.
EXTERNAL FACTORS AFFECTING PRICING
External factors are forces which are beyond control of the firm. A firm cannot alter or
change these factors or forces for its advantage.

Raw Prevalent
Buyer Government
Demand Competition Material Economic
Behaviour Regulation
Supplies Conditions

1. Demand: The market demand for a product has a direct

impact on its pricing. Since demand is affected by prospective
buyers, their incomes, tastes and preferences etc., they should
be taken into account while making decision of pricing. For an
instance if the demand for a product is inelastic, as in case of
necessity goods, a high price may be fixed. But if the demand
for a product is elastic, i.e., changeable in response to change in
price, the firm should not fix higher prices; rather fix lower
prices to grab major market share.

2. Buyers Behaviour: Buyers’ behaviour also affects the pricing

decisions. If they are habitual of the product the price may be
fixed high. Similar pricing decisions are taken by the firm, if
buyers have a particular perception of the product being a
symbol of prestige/ status, or utility, e.g. luxury cars.

3. Competition: Market-competition plays a crucial

role in pricing. In a highly-competitive market, a
seller’s objective is to give maximum utility at
minimum-possible price. Each firm tries to outsell
others offering lesser price and better quality
production the market. Therefore, prevailing
information about what price the competitors are
charging for similar products and what possibilities
exist for increasing/decreasing price also affect pricing.
4. Raw Material or Input suppliers: Pricing decisions take into
consideration three parties-the supplier of raw material, the
manufacturer, and the final consumer. If the supplier charges a
high price for inputs, the manufacturer shifts this burden to the
consumer by charging a higher price for the final product. On the
other hand, if a manufacturer is making large profit on a
particular product, suppliers will also try to cash in on these
profits by charging a higher price for the raw material.

5. Prevalent Economic Conditions: During a boom-

period in the economy, when market-conditions are
favourable due to ‘bullish attitude’ or inflationary trend,
firms can afford to fix higher prices of their products. On
the other hand, during slump-period when market-
conditions are un-favourable due to ‘bearish attitude’,
firms have to lower the prices of products to keep the
business going and to clear off their old stocks.

6. Government Regulations: If Government policies exert

regulatory pressures, promote anti-price rise sentiment etc,
then the companies cannot fix a higher price to capture the
market. On the other hand, if government policies are
supportive and promote businesses through healthy
competition in the market, then firms can fix higher prices.

TYPES OF PRICING

A. Demand-oriented pricing

B. Cost-oriented pricing
Types of Pricing
C. Competition-oriented pricing

D. Value- based pricing

A. Demand-oriented pricing

When customer demand sets up the price of a product in the

market, it is called Demand oriented pricing. There is an
inverse relationship between the price and quantity
demanded of a commodity. Higher is the price of a product,
lower will be its demand and lower is the price of a product,
higher will be its demand in a market. The basic equilibrium
price is determined by the forces of demand and supply. It is
fixed at the level where quantity demanded and quantity
supplied is equal.

Advantages of Demand Based Pricing

 The pricing based on demand takes into account customer’s price elasticity and
preferences
 It penalises inefficiency, optimises product mix and facilitates new product pricing
 It also obviates the difficulty of joint cost allocation
 It increases firm’s ability to optimise price using diagrams that predict ideal prices
 The demand based price does not ensure competitive harmony
 It is not safe from a company’s standpoint

SOME DEMAND BASED METHODS OF PRICING

Perceived Differential Skimming Penetration

Value Pricing Pricing Pricing Price Policy

1) Perceived Value Pricing: Perceived value pricing uses buyers' perception of value
and not the sellers cost as the key to pricing. The company uses the non-priced
variable in the marketing mix to build up perceived value in the buyers' mind. Price
is set to match the perceived value. Different buyers often have different perceptions
of the same product on the basis of its value to them. A company using perceived
value pricing must find out what value the buyers assign to different competitive
offers in terms of product quality, features and attributes like colour, size, durability
and looks For example consumers would pay differently for the normal size coca-
cola in different surroundings such as at a family restaurant at a 5-star hotel, In a
cinema hall, at a fast food stall.
2)Differential Pricing: Different Customers have different desires and wants. Intensity of
the demand for the product would also be different.

Following factors affect the differential pricing method.

a)Time of purchase: The Taxi charges vary on the basis of time of the day. There are night
charges and day charges. Hotels charge different amount for different seasons

b)Location: The similar products can be sold at different prices to the

customers in different places. Factor of place is the determinant of price in such situation. One
has to travel a lot to get the same product at a lower rate which is time consuming and may not
be economically desirable.

c)Product version: A book can be sold for different prices. By binding the book with
attractive leather cover, the seller can demand a higher price than the ordinary book. The cost
of the product will have a slight variation but the price could have huge variation in such
situations. Slightly different versions of products could be sold on
high prices in the market.

d) The Customer: In a theatre, there are different classes for viewing the same But the film is
same for all the customers. Some customers are willing to pay more for a comfortable seat. At
the same time some customers are not willing to pay higher cost for the same.

e)Bargaining ability: Bargaining ability of the customer is another factor for low and high
price of a product. Those who have the ability to bargain well can get the product at a lower
cost and others will have to shell out more money for the same product.

f)Level of the knowledge: Level of the knowledge of product features also affect the price
paid by the customer.

g)AvailabilityPricing:
3)Skimming of a product:
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'launching a new product with high price is an efficient device
for breaking up the market into segments that differ in price
elasticity of demand. The initial high price serves to
cream of the market, that is, relatively insensitive to price. The
method starts
with a high price (skim price) and moves the price downward
by steps until the price
is reached.

4)Penetration Price Policy: As opposed to the concept of skimming price strategy, the
penetration pricing, intends to help the product penetrate into markets to hold a position.
This can be done only by adopting a low price in the
initial period or till such time the product is finally
accepted by customers. This is an attempt to set new
product price low, relative to the cost. It involves
setting low initial price to establish market share,
prompt the competitors and/ or to capitalize
production economies. By setting low initial prices,
the competitors are kept away and this makes
possible for the firm to enlarge its share by generating
larger sales volume. This method of pricing is most common and is desirable when sales
volume of the product is very sensitive to price, when a large volume of sales is to be
effected, when product faces a threat from competitors and when stability of price is sought
for.

B. Cost-oriented pricing-
A method of setting prices that takes into account the company's profit objectives and
covers its costs of production is called Cost-oriented pricing. In this the marketer mainly
takes production costs as the key factor for determining the initial price, but normally
overlooks the target market’s demand for that product. This pricing again is of three types-

Cost Oriented Pricing

Cost plus Mark up Break-even

Pricing Pricing Pricing

a. Cost plus Pricing-

Cost plus pricing is a cost-based method for setting the prices of goods and services. This
type of pricing is most common type of product pricing. In this approach the cost estimates
of a product is made and margin of profit is added to determine the price. The formula for
its calculation is- Selling Price = Unit total cost + Desired unit profit

b. Mark up Pricing-
Mark up is the difference between the cost of a good or service and its selling price. This
pricing policy is generally adopted by the resellers who
obtain the product from producers or whole sellers use a
percentage increase on the top of product cost to arrive at
an initial price. Retailers apply a set percentage for each
product category according to their marketing objectives.
For example at the time of annual sale firms adopt mark-up
pricing on their products. The advantage of mark-up pricing
is that this method helps firms fight the inflation effects throughout periods of increasing
cost.

c. Break-even Pricing-
Break even pricing is the practice of setting a price point at which a business will earn zero
profits on a sale. The cost of production is composed of fixed cost
of production and variable cost of production. Fixed cost arises
on fixed factors of production, which do not change during short
run. Variable cost of production arises on variable factors of
production, and increase with increased volume of production.
Break even analysis uses market demand as a basis of price
determination. The formula for its calculation is-
BEP = Total Fixed Cost / Selling Price per unit – Variable cost
per unit

C. Competition-oriented pricing or market driven pricing

Competitive pricing is setting the price of a product or service based on what other firms
are charging. This type of pricing generally takes place in perfect
competitive market situation. Here product is homogeneous and
buyers and sellers are well informed about market price and market
conditions. The seller has no control on price and has to accept this
customary or market driven price.
 Going Rate Pricing
COMPETITION BASED
METHODS OF PRICING
Sealed Bid Pricing

1)Going Rate Pricing: Fixing the price as per the

market trend is known as going rate pricing. This
method practiced in such products which are easily
available in the market and have no variants. The
marketer does not analyze the market for its intensity
of demand or the perceptions of the value of the
products in the mind of buyers. It is not necessary that
the price should be same as the competitor or the industry leader. It could be little higher
or little lower than the price of industry leader. This is an easy method as there is no need
to estimate the price elasticity, demand or various product costs. It is also felt that the
adoption of the going rate pricing method prevents price wars among competitors. This
method is practiced mainly in the case of homogeneous products, under conditions of pure
competition and oligopoly.

2)Sealed Bid Pricing: In all those business lines where the firms bid for jobs, competition
based pricing is followed rather than its costs and demand. The firm fixes its prices on how
the competitors price their products. It means that if the firm is to win a contract or a it
should quote less than the competitors. With all this, the firm cannot set its price below a
certain level. That is, it cannot price below the cost. On the other hand, a higher price
above its costs may reduce the chances of winning the deal. The net effect of the two
opposite pulls can be well described in terms of "expected profit" of a particular bid.
These competitions based pricing methods are generally followed by the managers
when:
 They believe that strong competitors are better and able to select appropriate
prices, so they "follow the leader."

 Retaliatory price changes are likely beyond given range, and price changes by
competitors have a substantial effect on company sales.

 Costs, demand and other factors that affect sales and profit are stable enough to
make it possible to rely on following general industry pricing trends

3)Discriminatory Pricing: It implies that a firm sells the same product service at two or
more prices that do not reflect a proportional difference in costs. Price discrimination
occurs in many forms:

Discrimination on the basis of customer segment-the product / service is sold different

prices to different customer groups, e.g. Indian Railway charges lower fare for students.

Discrimination on the basis of product form-different version of the same product are
sold at different places. Based on image differences, e.g. a company may sell two varieties
of a bathing soap Rs.2 and Rs 50 respectively, through the difference in their
cost of Rs 10 only.

Locational discrimination-the product is sold at different prices at two places even

though the cost is the same at both the places, e. g. a cinema theatre charges different
prices for seats close to the screen and higher for the seats located far off i.e different for
ground floor and balcony seats.

Time discrimination-Prices differ according to the season or time of the day. Public
utilities like taxi charge higher rate at night. Similarly, 5 star hotels charge a lower price
for their rooms during off-season

Image discrimination-the same product is priced at different levels on the basis of

difference in image, e.g. a perfume company may price its perfume @ 500 Rs each in an
ordinary bottle and 799Rs in a fancy bottle with a different name and image.

D. Value- based pricing-

Value-based price is a pricing strategy which sets prices
primarily, according to the perceived or estimated value of
a product or service to customer rather than according to
the cost of the product. In this type of pricing price of a
product is determined on customers’ perception of value
rather than the seller’s cost. For example, the products sold
at ‘Fab-India’ or ‘Forest Essentials’ cosmetics.
MAJOR PRICING METHODS:

1.Competitive
Pricing
2.Penetration
12.Team pricing
Pricing

3.One Price
11.Everyday low
versus Variable
pricing
Price Policy

Major
10.Resale Price
Maintenance Pricing 4.Market
Skimming Pricing

Methods
5.Discrimination
9.Price Lining
or Dual Pricing

8.Psychological 6.Premium or
Pricing Prestige Pricing
7.Leader
Pricing
MAJOR PRICING METHODS:
1. Competitive Pricing
In this, the management of a firm fixes the price at the
competitive level in certain situations. This method is
used when the market is highly competitive and the
product is not differentiated significantly with respect
to competing products.

2. Penetration Pricing
Under this pricing method, the company’s objective is
to penetrate the market; capture a large market share
and develop popularity of the brand. For this purpose,
prices are fixed below the competitive level. This
method of pricing is usually found at the retail level of
distribution, for products with a highly elastic
demand. For example, the makers of Nirma detergent
powder used penetration pricing to enter the market and raise its market share quickly at
the cost of Surf.

3. One Price versus Variable Price Policy

In case of one-price policy, the seller charges the same price to
similar types of customers who purchase similar quantities of
the product under the same terms of sale. The price may vary
according to the quantity of purchase. For example, a seller
may charge Rs. 10 per unit if less than one dozen units are
purchased, and at Rs. 9 per unit if more than one dozen units are purchased.

4. Market Skimming Pricing

Under this pricing method, a seller may charge higher
prices during the initial stages of the product life cycle
that is, during the introduction of the new product in
market. This is done to recover the initial investment on
the product quickly and reap higher profits during the
introduction stage, because of fear of competition at a later stage in the product-life-cycle
5. Discrimination or Dual Pricing
Under this pricing method, a firm will
charge different prices from different
customers according to their ability to pay.
This policy is popular with service-
enterprises like legal and medical services,
CAs, etc.

6. Premium or Prestige Pricing

A company that sells a premium product, ie a product
of supreme quality and unique features and technology
will employ premium distribution channels and
promotional strategies. To justify these, the pricing of
such a product is also premium. Premium pricing can
give rich dividend when buyers are not price-
conscious and are willing to pay a higher price for a
better product.

7. Leader Pricing
Under this method of pricing, the prices of one or a few items may
be cut temporarily to attract customers. Such products are called
“loss leaders”. Loss-leader products are mostly popular, highly
advertised and purchased products. The rationale behind this
method is that customers will come to the store to buy the
advertised loss-leader product and then stay to buy other
regular-priced products of the same company, leading to
increased volume of sales.

8. Psychological Pricing
Under this pricing method, the prices of products are
set in such a way that has a psychological influence on
the buyers. Customary Pricing and Price Lining are
examples of psychological pricing. Odd Pricing is also a
form of psychological pricing, whereby prices are set at
odd numbers such as Rs. 99, Rs. 149, Rs. 990 which
makes the customers falsely believe that they’re paying
a lesser price.
9. Price Lining
This method is used extensively by retailers. In this, a retailer
usually offers a good, better and best assortment of products at
different price levels. For example, a retailer of readymade
shirts may sell them at three prices: Rs. 90 for the economy
choice, Rs. 150 for the medium quality and Rs. 500 for highest
quality. Price lining simplifies pricing decisions in the future as
retail prices are already set.

10. Resale Price Maintenance

Under this policy, the manufacturer sets the price below
which his/her manufactured product will not be sold to the
distributors or consumers. He/she may enter into a formal
agreement with the distributors of product to not sell below
this fixed price in any situation. The basic purpose of this
policy is to protect the interest of the manufacturer and
create a positive brand-image in the market.

11. Everyday low pricing

In this type of pricing sellers determine price of the product
according to everyday demand and supply. This is followed
generally in case of perishable goods. Here price differs even on
the basis of early hours of market and late hour of market, for
example in vegetable market prices of vegetables are different
every day.

12. Team pricing

In this type of pricing companies sell a package
or set of goods or services for a lower price than
they would charge if the customer buys all of
them separately. This is also called product
bundling. Common examples of such pricing
may be option packages on new cars, value
meals at restaurants and holiday trips.
CONDITIONS FAVOURING SKIMMING & PENETRATION PRICING POLICY
Skimming Pricing Policy is very effective under the following conditions:
1. Where the demand is relatively inelastic, as the customers know little about the
product and close rivals are few.
2. Where the market can be broken down into segments with different price elasticity of
demand.
3. Where little is known about price elasticity of the product.
4. Where there is minimum risk and one can move up in the prices.
5 Where the firm is making an effort to 'up market' its product so as to improve further
on quality, service and expenditure on marketing costs and so capitalizes on its
efforts.

The conditions favouring Penetration pricing policy are:

1. Where there is high price elasticity of demand, i.e., the firm is depending on low
prices to attract more customers to new product.
2. Where large economies are possible, it is because larger sales volume means lower
unit.
3. Where there is a strong threat of competition and only a low price can ward off the
potential entrants to the market.
4. Where there is utilized capacity: it is because; the price policy that increases the
demand has no meaning unless the firm is in a position to meet the demand created.
5. Where market segments are not there so that high price may be accepted.
6. When substitute product is available in the market.