BBA Part II Paper IX: Methods of Pricing
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BBA Part II Paper IX: Methods of Pricing

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Study Notes

Methods of Pricing

  • Two main categories of pricing methods: Cost-oriented and Market-oriented.

Cost-oriented Method

  • Utilizes cost as the foundation for setting product prices.

Cost plus pricing

  • Involves adding a percentage markup to the cost.
  • Example: Cost of Rs. 200 plus 10% gives a selling price of Rs. 220.

Mark-up pricing

  • Variation where mark-up is a percentage of the selling price rather than the cost price.

Break-even pricing

  • Determines the sales level needed to cover all fixed and variable costs.
  • Break-even price results in neither profit nor loss.

Target return pricing

  • Prices set to achieve specific return on investment (ROI).

Early cash recovery pricing

  • Pricing strategy aimed at recovering investment rapidly, especially when market life is short.
  • Useful in highly competitive markets or for perishable goods.

Market-oriented Methods

  • Focuses on customer perceptions and competitive pricing.

Perceived value pricing

  • Prices set based on customers' perceived value rather than solely on costs.
  • Influenced by factors such as advertising and customer service.
  • Effective market research is essential to gauge perceived value.

Going-rate pricing

  • Prices benchmarked against major competitors.
Sub-methods of Going-rate pricing:
  • Competitors’ parity method: Setting the same price as major competitors.
  • Premium pricing: Charging higher for additional features compared to competitors.
  • Discount pricing: Charging lower if lacking certain features relative to competitors.

Methods of Pricing

  • Two main categories of pricing methods: Cost-oriented and Market-oriented.

Cost-oriented Method

  • Utilizes cost as the foundation for setting product prices.

Cost plus pricing

  • Involves adding a percentage markup to the cost.
  • Example: Cost of Rs. 200 plus 10% gives a selling price of Rs. 220.

Mark-up pricing

  • Variation where mark-up is a percentage of the selling price rather than the cost price.

Break-even pricing

  • Determines the sales level needed to cover all fixed and variable costs.
  • Break-even price results in neither profit nor loss.

Target return pricing

  • Prices set to achieve specific return on investment (ROI).

Early cash recovery pricing

  • Pricing strategy aimed at recovering investment rapidly, especially when market life is short.
  • Useful in highly competitive markets or for perishable goods.

Market-oriented Methods

  • Focuses on customer perceptions and competitive pricing.

Perceived value pricing

  • Prices set based on customers' perceived value rather than solely on costs.
  • Influenced by factors such as advertising and customer service.
  • Effective market research is essential to gauge perceived value.

Going-rate pricing

  • Prices benchmarked against major competitors.
Sub-methods of Going-rate pricing:
  • Competitors’ parity method: Setting the same price as major competitors.
  • Premium pricing: Charging higher for additional features compared to competitors.
  • Discount pricing: Charging lower if lacking certain features relative to competitors.

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Description

Explore the essential methods of pricing in marketing, focusing on cost-oriented and market-oriented approaches. This quiz highlights key factors that influence pricing decisions and helps consolidate your understanding of pricing strategies in commerce.

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