DEMAND AND COST

DETERMINANTS OF PRICE
Presented by:
Neha Sharma(37-MBA-16)
Priyanka Shashu(44-MBA-
16)
Sonia Thappa(61-MBA-16)
Sumeet Kour(62-MBA-16)
Surbhi Mahajan(63-MBA-16)
Tavleen Kour(64-MBA-16)
Tushar(65-MBA-16)
 pricing
Process of determining what a
company will receive in exchange of
its product.
Factors to Consider
when Setting Prices
 How cost determines price
Using the cost of production as the basis
for pricing a product.
Here the selling price of product will depend
on the cost to produce it.
It includes :-

Direct and indirect costs

Additional amount to generate profit.

 COSTS
TYPES OF COST:
Fixed cost
Variable cost
Total cost

How costs vary at different

production levels will influence price
setting.
 Customers
Customers
Value
Value
Price
Price
Cost
Cost
Product
Product
Cost based pricing
Classifications of cost based pricing

1. Cost plus pricing

2. Full cost pricing

3. Target profit pricing

4. Marginal cost pricing

Cost plus pricing

A fixed percentage of profit will be

added to the cost.

The fixed percentage of profit will be

taken by manufacturer, wholesaler

and the retailer.

Full cost pricing

Also called absorption cost pricing.

Attempting to set price to cover both fixed

and variable costs
Total cost will be computed by adding
variable and fixed cost incurred in the
product.
The price of each product is dependant on
how many costs it creates.
Target profit pricing

Also called rate of return pricing

Mark-up = Profit/Cost x 100

Setting price to target a specified profit level

Estimates of the cost and potential revenue at

different prices, and thus the break-even have to be

made, to determine the mark-up

This method is possible when there is no competition

in the market.
Marginal cost pricing

This aims at maximizing the contribution towards

fixed cost.
In addition portion of the fixed cost will also
realized.
Marginal cost the cost of producing ONE extra
or ONE fewer item of production.
Particularly relevant in transport where fixed
costs may be relatively high
 How demand determines price
Pricing that is determined by how much customers
are willing to pay for a product or service
This method results in a high price when demand is
strong and a low price when demand is weak
May be differentiated based on considerations such
as time of purchase, type of customer or
distribution channel
Methods of Demand Based
Pricing:

The following method belong to

the category of demand based
pricing:
i. Skimming pricing
ii. Penetration pricing
 Demand based pricing

(i) Skimming pricing

Skimming pricing aims at high price and
high profits in the early stage of marketing.
As the word skimming indicates, this
method literally skims the market in the
first instance through high price and
subsequently settles down for a lower
prices. The method is very useful in the
pricing of new products, especially the ones
that have a luxury or specially element.
 Demand based pricing

(ii) Penetration pricing

It is opposite of the skimming
pricing. It is intended to help the
product penetrate into markets to
hold a position. This can be done
only by adopting a low price in the
initial period or till such time the
product is finally accepted by
customers.
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.
Price Elasticity of Demand
Thank you