PRICING METHODS 1

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PRICING METHODS 1

■            MANAGERIAL ECONOMICS/MARKETING MGMT

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■PRICING METHODS

1.    FULL COST OR COST PLUS PRICING

2.    MARGINAL COST PRICING /VARIABLE COST PRICING

3.    RATE OF RETURN PRICING

4.    GOING RATE PRICING

5.    CUSTOMARY PRICING

6.    SEALED BID PRICING

7.    PRODUCT TAILORING ETC

Ø  FULL COST OR COST PLUS PRICING

■           ALSO KNOWN AS MARK UP PRICING OR AVERAGE COST PRICING.

·         MEANS THE ADDITION OF A CERTAIN PERCENTAGE OF THE COSTS AS PROFIT TO THE COST OF PRODUCTION TO ARRIVE AT PRICE.KNOWN AS MARK UP

·         COST PER UNIT AND SECOND IS MARK UP

·         COST: ACTUAL COST,EXPECTED COST AND STANDARD COST AND THEN A FAIR RATE OF OR PROFIT IS ADDED TO KNOW THE PRICE

·         IGNORES THE DEMAND SIDE,COMPETITION,BASED ON CONVENTIONAL ACCOUNTING

■            BENEFITS

1.    FAIR TO CONSUMER

2.    LOGICAL WAY OF MAXIMIZING THE LONG RUN PROFIT

3.    LESS UNCERTAINTY ABOUT COST

4.    USED BY PUBLISHING HOUSE IN INDIA

■            MARGINAL COST PRICING/VARIABLE COST PRICING

·         FIXED COSTS ARE IGNORED AND PRICING ARE DETERMINED ON BASIS OF MARGINAL COST

·         FIRM USES ONLY THOSE COSTS WHICH ARE DIRECTLY ATTRIBUTABLE TO PRODUCT OF THE SPECIFIC METHOD. IN THE LONG RUN IT WILL COVER ALL THE COSTS

·         OBJECTIVE OF THE FIRM IS TO MAXIMIZE ITS TOTAL CONTRIBUTION TO FIXED COST AND PROFIT.

■            ADVANTAGES: PRICES NEVER NONCOMPETITIVE,MORE AGGRESSIVE POLICY,MORE USEFUL

■            DISADVANTAGES:-NOT POSSIBLE PRACTICALLY,CUT THROAT COMPETITION,OVERHEAD COST NOT COVERED

■            SUITABILITY OF MARGINAL COST PRICING

1.    INTRODUCTION OF NEW PRODUCT

2.    EXPLORING FOREIGN MARKET

3.    BULK MATERIAL IN QUANTITIES

4.    NOT POSSIBLE TO CLOSE DOWN THE BUSINESS

5.    HELP IN PUSHING THE SALE OF OTHER PRODUCT

6.    NOT POSSIBLE TO RETRENCH THE EMPLOYEES

7.    TO ELIMINATE COMPETITION

8.    PERISHABLE GOODS

■            RATE OF RETURN PRICING

·         TARGET RATE OF RETURN ON ITS INVESTMENT : CALCULATION BY DIFFERENT FORMULA

a)    TOTAL PROFIT/TOTAL COST

b)    TOTAL PROFIT/TOTAL SALES

c)    TOTAL PROFIT/TOTAL CAPITAL

■            GOING RATE PRICING

AS PER GENERAL PRICING STRUCTURE IN THE INDUSTRY

FIXES OR ADJUST THE PRICE OF ITS OWN PRODUCT ACCORDINGLY

■            OTHER METHODS

a)    SEALED BID PRICING:- COMPETITION BASED

b)    PRODUCT TAILORING:-PRICE OF THE PRODUCT DETERMINE THE COST

c)    REFUSAL PRICING:-DESIGNED TO SPECIFICATION OF SINGLE BUYER OR TO SUIT THE SPECIFIC NEEDS OF THE BUYER

■       CUSTOMARY PRICES:-

·         TRANSFER PRICING

a)    MARKET PRICE

b)    COST BASIS

c)    COST PLUS BASIS

■            CONSIDERATIONS:

a)    TRANSFER PRICING OF A PRODUCT WITH COMPETITIVE EXTERNAL MARKET

b)    WITH NO EXTERNAL MARKET

c)    WITH IMPERFECT EXTERNAL MARKET