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Pricing Methods

The document discusses several methods of pricing, including cost-plus pricing, full cost pricing, marginal pricing, break-even pricing, target return pricing, competition based pricing, demand based pricing, and strategy based pricing. It also covers specific pricing strategies like penetration pricing, market skimming, psychological pricing, everyday low prices, and promotional pricing used with sales promotions.

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ghosh71
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58 views23 pages

Pricing Methods

The document discusses several methods of pricing, including cost-plus pricing, full cost pricing, marginal pricing, break-even pricing, target return pricing, competition based pricing, demand based pricing, and strategy based pricing. It also covers specific pricing strategies like penetration pricing, market skimming, psychological pricing, everyday low prices, and promotional pricing used with sales promotions.

Uploaded by

ghosh71
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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METHODS OF PRICING

COST PLUS PRICING


COST PLUS PRICING

◎Production costs are determined and then a target


profit margin is applied

◎Uses a base-cost figure per unit and adds


a markup to cover unassigned costs and to provide
a profit.
COST PLUS PRICING
◎ Cost Plus Pricing
○ Cost of materials
○ Cost of labour

○ Add an amount for


profit/undetermined cost

Does not take into account general


overhead costs

Beware of making loss due to


hidden overhead
FULL COST PRICING

Attempting to set price to cover both fixed and


variable costs

COST OF DEVELOPMENT
PRODUCTION COST
MARKETING COST
OVERHEADS
MARGINAL PRICING

Marginal pricing is based on the assumption that since


fixed and variable costs are covered by the current output
level, the cost of producing any extra unit (marginal
output) will comprise only of variable costs of additional
labor and material consumed.
MARGINAL COST PRICING

Aircraft flying from CHENNAI to COCHIN – Total Cost (including normal profit) =
15,00,000 of which 13,00,000 is fixed cost*

Number of seats = 160 (160 PASSENGERS), average price = 9375

MC (vc) of each passenger = 2,00,000/160 = 1250

If flight not full, better to offer passengers chance of flying at 1250 and fill the
seat than not fill it at all!
*All figures are estimates only
BREAK EVEN PRICING
Break-even pricing is an accounting pricing

methodology in which the price point at which a

product will earn zero profit is calculated. In other

words, it is the point at which cost is equal to

revenue.
TARGET RETURN PRICING
The Target-Return Pricing is a method wherein the firm

determines the price on the basis of a target rate of return on

the investment i.e. what the firm expects

from the investments made in the venture.

The firm calculates the amount invested in the business


activities and then determine the return they expect from these
assuming a particular quantity of the product is sold
COMPETITION BASED PRICING

GOING LOSS SEALED


RATE LEADER BID
PRICING PRICING PRICING
(LIMIT PRICING)
DEMAND
BASED
PRICING
STRATEGY
BASED
PRICING
PENETRATION PRICING
Price set to ‘penetrate the market’

‘Low’ price to secure high volumes

Typical in mass market products – chocolate bars, food stuffs,


household goods, etc.

Suitable for products with long anticipated life cycles

May be useful if launching into a new market


MARKET SKIMMING
High price, Low volumes

Skim the profit from the market

Suitable for products that have short life cycles or which will face
competition at some point in the future (e.g. after a patent runs out)

Examples include: Playstation, jewellery, digital technology, new DVDs,


etc.
PSYCHOLOGICAL PRICING

Used to play on consumer perceptions

Classic example - 9.99 instead of 10.00!

Odd-even: 5.95, 79, 699 OR 12, 50

Multiple Unit-3 for Rs1.00 better than .34 each


EVERYDAY LOW PRICES (EDLP)
Psychological Pricing
– set on a consistent basis
PROMOTIONAL PRICING
USED WITH SALES PROMOTION

Special-Event

Combos and Product Bundle Pricing

Anniversary sales

Rebates and Coupons

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