What are pricing techniques

The pricing method you select provides direction on how to set your product price.

Pricing techniques

Cost-based pricing

Cost-based pricing is where the price includes the cost of ingredients and cost of operating the business. This method can be sub-classified as :

i.Cost plus pricingii. Full cost pricingiii. Target profit pricingiv. Marginal cost pricing

Cost-based pricing

Cost-based pricing

Cost-based pricing

Cost-based pricing

Demand based pricing

Demand based pricing is a system where the price is based on the customer ‘demand’ or need for the product. If the product is unique or innovative, a value-based price may help create a demand for the product or service. The following method belong to the category of demand based pricing:i.Skimming pricingii.Penetration pricing

Demand based pricing

Demand based pricing

This method of pricing is desirable under the following conditions :1.When sales volume of the product is very sensitive to price.2.When a large volume of sales is to be effected.3.When stability of price is required.

Competition based pricing

This pricing method is useful when the product is homogeneous and market is highly competitive. Under this method, the company tries to maintain the price of its products more or less at par with its competitors price. This pricing method includes :i.Premium pricingii.Discount pricingiii.Going rate pricingiv.Tender pricing

Competition based pricing

Competition based pricing

Affordability based pricing

The affordability based pricing method is relevant in respect of essentials commodities which meet the basic needs of all sections of people. The idea here is to set prices in such a way that all sections of the population are in a position to buy and consume the products to the requires extent.

Key Factors Affecting the Pricing Decision

Factors which can be categorized into two main groups:-

Internal Factors

External Factors

Internal Factors

1.Marketing Objectives2.Costs

Internal Factors

Marketing Objectives Return on Investment (ROI) Cash Flow Maximize Profits Market Share

Internal Factors

Costs Fixed Costs Variable Costs

External Factors

1. Elasticity of Demand2. Government Regulation3. Customer Expectations

External Factors

Elasticity of Demand Elastic Demand Unitary Demand Inelastic Demand

External Factors

Government RegulationCustomer Expectations

References

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