Concepts

Cost based pricing-

Description
The sum of cost plus a profit margin is taken.
We consider total cost plus pricing and with
variable cost it is marginal costing

Instances/Example
Total cost including
fixed and variable cost

Cost plus mark up pricing

Is average or full cost pricing and determine

mark up pricing, based on target rate of
return, degree of competition, price elasticity
and availability of substitutes (P=AC + m)

AC+ m

Marginal cost pricing Or

incremental cost pricing.

Price is very competitive and base price is less Variable cost is taken
than in case of full cost pricing. It is the sum
instead of total cost.
of variable cost plus a profit margin

Target return pricing

when mark up price is determined arbitrarily,

the target price is rationally decided by the
producer. It is the minimum rate of return
which must be earned by the product. Margin
is determined on the basis of target rate of
return, determined companys experience,
consumers paying capacity and risk involved

First order derivatives

and second order
derivatives of profit
maximization

Pricing based on firms

objective

is based on profit maximization and sales

maximization

Competition based pricing

Is strategy adopted for entering a new market,

as well as for creating hurdles for others

Marginal cost is taken

for selling maximum
output
Based on degree of
competition

Penetration pricing

Is a dominant firm charge a low price, even

lower than the ongoing price.

Entry deterring pricing or

Limit pricing

In order to eliminate or reduce competition,

firms keep the price at low level, thus making

BSNL in Indian phone

industry, Air Deccan
entry in civil aviation,
Nirma in HLL (all
with low cost success
depends with
elasticity)
In monopoly
(Microsoft) and in

the market unattractive for other players

Going rate pricing

Product life cycle based

price

Price skimming

Product bundling (or

packaging)

Perceived value pricing

Value pricing

Oligopoly asbestos
and aluminum
Is adopted when most of the players do not
In monopolistic
indulge in separate pricing but prefer to
market products like
follow the prevailing market price.
pasteurized milk,
cosmetics, soft drinks,
good soap, soft tooth
brush
An intelligent firm will devise different
Introduction stage:
pricing for a product at different stages of its
internet facility, first
lifecycle. Pricing for a product is based on
TV with flat screen,
different stages like introduction, growth,
cellular phone.
maturity, saturation, decline
Growth stage charging
lower price from
residual customer
since product has
already created its
own market . In
maturity stage sellers
try to woo the
customers by
discounts, buy pack,
product bundling,
advertisements. R&D
producers charge a very high price in the
Elasticity of demand
beginning to skim the market and earn super
is governed by status
margins on sales
symbol factor and not
by intrinsic value of
the product
Two or more products are handled for a single Super fast trains
price.
provide food and
bedding as part of the
train fare (Rajdhani
express and Shatabdi
express)
Value of goods for different consumers
Parker pens, Tanishq
depends upon their perception of utility of the jewellery, Phillips
good
products, Titan
watches
sellers try to create a high value of the product Koutons brand of
and charge a low price.
mens wear

Loss leader pricing

multi product firms sell one product at a low

price and compensate the loss by other
products

Pen and ink, cartridge

and printer,
photocopier and toner

Cyclical pricing

economic condition do not remain stable, with Demand for consumer

ups and down wave like movements causes

trade cycle

durables during
prosperity with
increase in sales
encourages
employment,
production, income
and thus demand.
Reverse situation may
happen during
recession
With more emphasis
on cost and quality

Rigid pricing

irrespective of economic condition companies

should follow a stable pricing policy

Flexible pricing

firms should keep their prices flexible in order FMCG goods and
to meet the challenges of increasing (or
agricultural products
decreasing) demand

Multi product pricing

a firm producing more than one product with

the same production facility needs to decide
on a different pattern than a firm producing a
single product

Ramsay pricing

a model which became very useful for pricing

decisions of a mutli product firm. He
suggested that the government should levy
high tax on the goods which had low price
elasticity

Transfer pricing

are the changes made when a company

supplies goods, services or financials to
another company to which it is related as it
subsidiary or sister concern

Peak Load pricing

different prices are charged for the same

facility used at different points of time by the
same consumers

Sealed bid pricing

a separate market in which the buyer does not

prefer an open market price but demands that

Tata sons produces

goods like trucks,
cars, tea, jewellery,
and software.
Interdependent than
supply interdependent
.Some are
independent of each
others while some are
dependent products
Club house ability to
pay for affordable
accommodation and
higher is the taxation
paid
MNCs have to set a
transfer prices for
supply of goods,
technical know how,
marketing rights from
parent to a subsidiary .
Phone tariff during
night hours is low.
Airlines provide
discounts on tickets
purchased at different
point of time
All government
departments including

he sellers provide their rates in sealed form,

commonly known as tenders

construction,
procurement of goods,
vehicles, machinery
are done through
tendering
Upper limit pricing
(Maximum retail
price) plus
commission

Retail pricing

marketing channel categorically consists of at

least two sections, wholesalers and retailers.
They constitute nearly 97% of all business
activity.

Everyday low pricing

strategy

low price is charged throughout the year and

none or very few special discounts are given
on special occasions With large in size to
avail economies of scale and has very low
overhead expenses. There are also high- low
pricing (when overhead expenses that cannot
afford everyday low pricing the firms attracts
or snatches the customers from rivals by
using ELDP)

Wall mart. Big bazaar

Export pricing

prices are determined based on the

characteristics of foreign market situations.
Also on the basis of tariff and trade
restrictions prices are determined

Administered pricing
mechanism

are those that is statutorily determined by the

government

Dumping

a pricing strategy adopted by a country where

a product is exported in bulk to a foreign
country at a price which is either below the
domestic market price or below the marginal
cost of production

unknown demand,
unpredictable
attitude, medium of
exchange, risk in
exchange
Products like steel,
fertilizers, coal,
sugarcane are
identified for APM
WTO and members
initiatives, also
antidumping measures
taken against imports
and tariffs imposed on
consumer goods like
cell batteries, sports
shoes and china toys