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PRICING STRATEGY

PRICING OBJECTIVE
Profit oriented : Target return
Maximize profit

Sales oriented : Dollar or unit sales


growth Growth in market share

Price
Exchange value in money term

Seller
Exchange

Customer

Product

Money

Pricing method
Based Based Based Based on on on on cost demand market customer

Based on Cost :
Mark up pricing : Adopted by sellers
find the total cost & expenses incurred on the purchase of the item then add a mark up . This mark up may be fixed amount or percentage of purchase cost .

Cost plus pricing : Adopted by producer


first find out total cost incurred to manufacture the item.

Add to total cost a profit margin, profit can be fixed amount or percentage of total cost .

Total cost = Fixed cost + Variable cost

Target rate of return : Small scale units apply


this method . Rate of return can be : 1. Fixed amount 2. Percentage of investment Investment + Rate = Total revenue

Based on Demand : Received value pricing : Ask customer what is


the value he is expecting and then fix the price . Demand differential pricing : More demand higher price . Low demand low price .

Based on Market :
Form of market Number of firms Nature of product Price elasticity of demand Degree of control Example

Monopoly

One

Unique product

Very small

Considera ble

Railway

Monopolistic

A large no of firms

Product Large differentiateby each other Homogeneous Small

Some

Oligopoly

Few firms

Some

Steel industry , Film

Based on Customer :
The customer is asking the seller to bid his price . The customer / buyer provides the details and specifications material to be purchased. The seller will then calculate their own costs and price the item as they deem fit .

Fixing price of new product

Penetration price

Skimming price

Penetration price :
Initially fixing low price later increase to market level this is applicable to me too product such product are already available and there is no difference in our products . Generally applicable to consumer items low value item, convenience goods.

Skimming price :
Charge initially high price to recover. cost of high technology sometimes the first mover wants to take advantage of charging monopoly price. Later, after the market in picking up or more new competitors have entered start charging low price to take advantage of your name as first mover.

This can be applied to high technology products, computer peripherals engineering and electronics items gift.

Conclusion
There are many factor determining the price, but I have explained only few fields or factor. Pricing strategies is a very important concept in the German companies strategies planning.

Price is the main factor that determine the Brand name or Goodwill.

Question Answer

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