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Pricing methods:-

1. COST-BASED PRICING Under cost based pricing the marketer primarily looks at production costs as the key factor in

determining the initial price.

This method offers the advantage of being easy to implement as long as costs are known. But

one major disadvantage is that it does not take into consideration the target market’s demand for the

product.

This could present major problems if the product is operating in a highly competitive market

where competitors frequently alter their prices.

2. MARKUP ON COST Using this method price is determined by simply multiplying the cost of each item by a

predetermined percentage then adding the result to the cost.

A major general retailer, may apply a set percentage for each product category (e.g.,

women’s clothing, automotive, garden supplies, etc.) making the pricing consistent for all like-

products. Alternatively, the predetermined percentage may be a number that is identified

with the marketing objectives (e.g., required 20% ROI). The calculation for markup on cost is:

Item Cost + (Item Cost x Markup Percentage) = Price 50 + (50 x .30) = Rs 65

3. COST-PLUS PRICING Cost-plus pricing also adds to the cost by using a fixed monetary amount rather than

percentage.

For instance, a contractor hired to renovate a office owner’s office will estimate the

cost of doing the job by adding their total labor cost to the cost of the materials used in the

renovation. The homeowner’s selection of carpet to be used in is likely to have little effect on

the labor needed to install it whether it is a low-end, low priced tile or a high-end, premium

priced carpet. Assuming most material in the office project are standard sizes and

configuration, any change in the total price for the renovation is a result of changes in

material costs while labor costs are constant.

4. ) BREAKEVEN PRICING Breakeven pricing is associated with breakeven analysis, which is a forecasting tool used by

marketers to determine how many products must be sold before the company starts realizing

a profit.

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The formula for determining breakeven takes into consideration both variable and

fixed costs as well as price, and is calculated as follows:

Fixed Cost = Number of Units to Breakeven

Price – Variable Cost

5. TARGET RETURN PRICING In this method marketer sets price to achieve a target return-on-investment (ROI). For

example, let's assume that marketer have invested Rs.10,000 in the company. Expected sales

volume is 1,000 units in the first year. Marketer want to earn all his investment in the first

year, so he need to make Rs.10,000 profit on 1,000 units, or Rs. 10 profit per unit, giving a

price of Rs. 60 per unit.

6. VALUE-BASED PRICING Companies price their product based on the value it creates for the customer. This is usually

the most profitable form of pricing, if one can achieve it.

In this method it is the buyers perception of value and not the sellers cost which is the key to

the product pricing.

Let's say that a tube light manufactured by Mahamaya Electric Devices saves the typical

customer Rs.1,000 a year in, say, energy costs. In that case, price tag of Rs.60 seems too

cheap. If the product reliably produced that kind of cost savings, company could easily charge

Rs.150, Rs.200 or more for it, and customers would gladly pay it, since they would get their

money back in a matter of months.

7. PSYCHOLOGICAL PRICING This method takes into consideration the consumer's perception of price.

Odd-Even Pricing: a product priced at Rs. 299.95 may be perceived as offering more value than

a product priced at Rs. 300.00.

Prestige Pricing: The higher the price the more likely customers are to perceive it has being

higher quality compared to a lower priced product. marketers, looking to present an image of

high quality, may choose to price products at even levels (e.g., Rs. 100 rather than Rs.99.99).

8. MARKET PRICING Under the market pricing method cost is not the main factor driving price decisions; rather

initial price is based on analysis of market research in which customer expectations are

measured.

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The main goal is to learn what customers in an organization’s target market are likely to

perceive as an acceptable price.

9. COMPETITION BASED PRICING When setting price it makes sense to look at the price of competitive offerings. For some,

competitor’s price serves as an important reference point from which they set their price.

Below Competition Pricing: A marketer attempting to reach objectives that require

high sales levels (e.g., market share objective) may monitor the market to insure their

price remains below competitors.

Above Competition Pricing: Marketers using this approach are likely to be perceived

as market leaders in terms of product features, brand image or other characteristics

that support a price that is higher than what competitors offer.

Parity Pricing: A simple method for setting the initial price is to price the product at

the same level competitors price their product.