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 Is average or full cost pricing and determine mark up pricing, based on target rate of return, degree of competition, price elasticity and availability of substitutes (P=AC + m)

Instances/Example Total cost including fixed and variable cost AC+ m refer to examples in Page 417 -418 (Geethika)

Cost plus mark up pricing

Marginal cost pricing Or incremental cost pricing.

Target return pricing

Price is very competitive and base price is less Variable cost is taken than in case of full cost pricing. It is the sum instead of total cost. of variable cost plus a profit margin Refer to example in page number 418 (Geethika) when mark up price is determined arbitrarily, First order derivatives the target price is rationally decided by the and second order producer. It is the minimum rate of return derivatives of profit which must be earned by the product. Margin maximization is determined on the basis of target rate of return, determined company’s experience, consumers paying capacity and risk involved is based on profit maximization and sales maximization Is strategy adopted for entering a new market, as well as for creating hurdles for others Is a dominant firm charge a low price, even lower than the ongoing price. 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 with low cost success depends 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:

Pricing based on firm’s objective Competition based pricing

Penetration pricing

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

Going rate pricing

Product life cycle based

An intelligent firm will devise different


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

Price skimming

Product bundling (or packaging)

Perceived value pricing

Value pricing

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 margins on sales symbol factor and not 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 multi product firms sell one product at a low price and compensate the loss by other products Pen and ink, cartridge and printer, photocopier and toner

Loss leader pricing

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 happen during

Rigid pricing

irrespective of economic condition companies should follow a stable pricing policy

recession With more emphasis on cost and quality

Flexible pricing

firms should keep their prices flexible in order FMCG goods and to meet the challenges of increasing (or agricultural products decreasing) demand 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

Multi product pricing

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 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 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. Airlines provide discounts 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 price) plus

Transfer pricing

Peak Load pricing

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

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. They constitute nearly 97% of all business

activity. Everyday low pricing strategy 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 low overhead expenses. There are also high- low pricing (when overhead expenses that cannot afford everyday low pricing the firms attracts or snatches the customers from rivals by using ELDP) prices are determined based on the characteristics of foreign market situations. Also on the basis of tariff and trade restrictions prices are determined are those that is statutorily determined by the government

commission Wall mart. Big bazaar

Export pricing

Administered pricing mechanism


a pricing strategy adopted by a country where a product is exported in bulk 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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