BBA Part II Paper IX: Methods of Pricing

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.