What is Price And Its Objectives
Price is not just a number on an item it is the amount of money expected, required, or given in payment for something. Price is a value which is useful for purchase a finite quantity, weight or other measure of a good or service. Price is anything like you pay rent for your apartment, fee to your doctor and bus, airline, railway and taxi fare etc.
- Current Profit Maximization
- Current Revenue Maximization
- Maximize Quantity
- Maximize Profit Margin
- Quality Leadership
- Partial Cost Recovery
- Status Quo
- Cost based pricing
- Demand based pricing
- Competition oriented pricing
- Product line pricing
- Affordability based pricing
- Differentiated pricing
Cost based pricing:
Type of cost based pricing:
- Cost plus pricing
- Full cost pricing
- Target rate of return pricing
- Marginal rate of return pricing
Cost plus pricing:
Cost plus pricing is method under it a standard mark-up is added to the production cost. It is usually used by distributor, marketing firm etc. for ex: a construction companies submit the job bids by estimating the project cost and adding the special mark-up for profit.
Unit cost is given by:
Unit cost=variable cost + fixed cost/unit sales
Mark-up price is given by:
Mark-up price = unit cost/ (1- desired return on sales))
Full cost pricing:
It is a type of pricing which is generally used by manufacturing firm. It is a standard costing technique. It includes fixed cost, variable cost, selling and administrating cost and advertising cost. It is also known as absorption cost pricing.
Target rate of return pricing:
Target rate of return pricing is same as full cost pricing. Only difference is in fixing the profit margin. Profit margin is fixed by considering the rate of investment. This pricing strategy is used by market leader or monopolists.
Marginal rate of return pricing:
Under marginal rate of return pricing cost and demand are important factor. It is a price which depends upon market condition. The main aim of marginal rate of return pricing maximizing contribution towards fixed cost.
Demand based pricing:
It is most realistic pricing method. Under it pricing decision is depending on demand and supply of goods.
Types of demand based pricing:
- Skimming pricing
- Penetration pricing
Under this pricing method a product is introduced in the market at high range and when product is settle down its price become lower .ex: most of the electronic item like TV, Mobile phone.
Under this pricing method initially a product introduced at lower price and when demand of the product increased in the market price is also increase. For ex: DTH service, TV channels etc.
Competition oriented pricing:
It is a pricing which is depending upon the competitor price. It is not just like competitor price it can also be the premium pricing, discounted pricing, parity pricing etc.
Product line pricing:
Product line is the set of product which is related to each other. The manufacturing cost of these products also will not be much different. The main purpose is to get optimum profit from the line. Ex: pulsar 150, 180, 200, 220.
Affordability based pricing:
It is also called as social welfare pricing. The main aim of this pricing is to make the product available to target people at an affordable price. Under it product usually distributed through public distribution system. Under it subsidies are involved. Ex: medicine, akash tablet.
Differentiated price menace different price for the same product at different location. Price different may be in the case of different customer class, different volume of purchase.