Pricing Methodology

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Topics: Pricing
PRICING METHODOLOGY
Pricing methods adopted by an organization determines the values attached to its products. Pricing determinant can be Internal or External. An Internal pricing determinant is one that is controlled by the marketer while the external is not controllable by the marketer.

We shall be considering the following types of pricing models:

PRICE DISCRIMINATION: Price discrimination is the practice of setting a different price for the same product in different segments to the market. For example, this can be for different classes, such as ages, or for different opening times.

PRICE LEADERSHIP: An observation made of oligopolistic business behavior in which one company, usually the dominant competitor among several, leads the way in determining prices, the others soon following. The context is a state of limited competition, in which a market is shared by a small number of producers or sellers.

PSYCHOLOGICAL PRICING: Pricing designed to have a positive psychological impact. There are certain price points where people are willing to buy a product. If the price of a product is $100 and the company prices it as $99, then it is called psychological pricing. In most of the consumers mind $99 is psychologically ‘less’ than $100. A minor distinction in pricing can make a big difference in sales. The company that succeeds in finding psychological price points can improve sales and maximize revenue.

TARGET PRICING: Pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. The target pricing method is used most often by public utilities, like electric and gas companies, and companies whose capital investment is high, like automobile manufacturers.Target pricing is not useful for companies whose capital investment is low because, according to this formula, the selling price will be understated. Also the target pricing method is not keyed to the demand for the

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