Questions and Answers
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.
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 fundamental methods of pricing, focusing on cost-oriented and market-oriented strategies. This quiz covers key concepts such as cost plus pricing, mark-up pricing, and break-even pricing. Understand how these methods influence product pricing in various market scenarios.
