Pricing Strategy

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Concepts Cost based pricing-

Description The sum of cost plus a profit margin is taken. We consider total cost plus pricing and with variable cost it is marginal costing

Instances/Example Total cost including fixed and variable cost

Cost plus mark up pricing

Is average or full cost pricing and determine mark up pricing, pricing, based on target rate of return, degree of competition, price elasticity

AC+ m refer to examples in Page 417 -418 (Geethika)

and availability of substitutes (P=AC + m) Marginal cost pricing Or incremental cost pricing.

Price is very competitive and base price is less than in case of full cost pricing. It is the sum of variable cost plus a profit margin

Target return pricing

when mark up price is determined arbitrarily, the target price is rationally decided by the  producer. It is the minimum rate of return which must be earned by the product. Margin is determined on the basis of target rate of return, determined company’s experience, experience, consumers paying capacity and risk involved involved

Pricing based on firm’s objective

is based on profit maximization and sales maximization

Competition based pricing

Is strategy adopted for entering a new market, as well as for creating hurdles for others

Penetration pricing

Is a dominant firm charge a low price, even lower than the ongoing price.

Entry deterring pricing or Limit pricing

In order to eliminate or reduce competition, firms keep the price at low level, thus making the market unattractive for other players

Going rate pricing

Is adopted when most of the players do not indulge in separate pricing but prefer to follow the prevailing market price.

Product life cycle based

An intelligent firm will devise different

Variable cost is taken instead of total cost. Refer to example in  page number 418 (Geethika) First order derivatives and second order derivatives of profit maximization

Marginal cost is taken for selling maximum output Based on degree of competition BSNL in Indian  phone industry, Air Deccan entry in civil aviation, Nirma in HLL (all withdepends low cost success with elasticity) In monopoly (Microsoft) and in Oligopoly asbestos and aluminum In monopolistic market products like  pasteurized milk, cosmetics, soft drinks, good soap, soft tooth  brush Introduction stage:

 

 price

Price skimming

Product bundling (or  packaging)

Perceived value pricing

Value pricing

pricing for a product at different stages of its lifecycle. Pricing for a product is based on different stages like introduction, growth, maturity, saturation, decline

internet facility, first TV with flat screen, cellular phone. Growth stage charging lower price from residual customer since  product has already

created its own market . In maturity stage sellers try to woo the customers by discounts, buy pack,  product bundling, advertisements. R&D producers charge a very high price in the Elasticity of demand  beginning to skim the market and earn super is governed by status symbol factor and not margins on sales  by intrinsic value of the product two or more products are handled for a single Super fast trains  price.  provide food and  bedding as part of the train fare (Rajdhani express and Shatabdi express) Value of goods for different consumers Parker pens, Tanishq depends upon their perception of utility of the  jewellery, Phillips good  products, Titan watches sellers try to create a high value of the product Koutons brand of and charge a low price. men’s wear  

Loss leader pricing

multi and product firms sell one product at a low  price compensate the loss by other  products

Cyclical pricing

economic condition do not remain stable, with Demand for consumer ups and down wave like movements causes durables during trade cycle  prosperity with increase in sales encourages employment,  production, income and thus demand. Reverse situation may

Pen and ink, cartridge and printer,  photocopier and toner

happen during

 

recession With more emphasis on cost and quality

Rigid pricing

irrespective of economic condition companies should follow a stable pricing policy

Flexible pricing

firms should keep their prices flexible in order to meet the challenges of increasing (or decreasing) demand

FMCG goods and agricultural products

Multi product pricing

a firm producing more than one product with the same production facility needs to decide on a different pattern than a firm producing a single product

Tata sons produces goods like trucks, cars, tea, jewellery, and software. Interdependent than supply interdependent .Some are independent of each others while some are dependent products

Ramsay pricing

a model which became very useful for pricing decisions of a mutli product firm. He suggested that the government should levy high tax on the goods which had low price elasticity

Transfer pricing

are the changes made when a company supplies goods, services or financials to another company to which it is related as it subsidiary or sister concern

Peak Load pricing

different prices are charged for the same facility used at different points of time by the same consumers

MNCs have to set a transfer prices for supply of goods, technical know how, marketing rights from  parent to a subsidiary . Phone tariff during night hours is low.

Sealed bid pricing

a separate market in which the buyer does not  prefer an open market price but demands that he sellers provide their rates in sealed form, commonly known as tenders

Retail pricing

marketing channel categorically consists of at least two sections, wholesalers and retailers.

Airlines discountsprovide on tickets  purchased at different  point of time All government departments including construction,  procurement of goods, vehicles, machinery are done through tendering Upper limit pricing (Maximum retail

They constitute nearly 97% of all business

 price) plus

 

Everyday low pricing strategy

activity.

commission

low price is charged throughout the year and none or very few special discounts are given on special occasions With large in size to avail economies of scale and has very ver y low overhead expenses. There are also high- low  pricing (when overhead expenses that cannot

Wall mart. Big bazaar

afford everyday low pricing the firms attracts or snatches the customers from from rivals by using ELDP) Export pricing

prices are determined based on the characteristics of foreign market situations. Also on the basis of tariff and trade restrictions prices are determined

Administered pricing mechanism

are those that is statutorily determined by the government

Dumping

a pricing strategy adopted by a country where a product is exported in bulk to to a foreign country at a price which is either below the domestic market price or below the marginal cost of production

unknown demand, unpredictable attitude, medium of exchange, risk in exchange . Products like steel, fertilizers, coal, sugarcane are identified for APM WTO and members initiatives, also antidumping measures taken against imports and tariiffs imposed on consumer goods like cell batteries, sports hoes and china toys

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