Methods of pricing

pricing

1. METHODS OF PRICING Group 10 | Marketing Management II 26 November 2015 Submitted By- Rohit Kawade (133) Simmy S Nigam(135) Swagat debbarma (137) Debojyoti Sanyal (141) Anurag Sarode (143) Abhishek Tigga (145)

2. Pricing Methods Mark Up Pricing Absorption cost Target- Return Pricing Perceived Value Pricing Going Rate Pricing Auction- Type Pricing COST ORIENTED MARKET ORIENTED

3. Mark Up Pricing The selling price is fixed by adding Mark-up or Margin to its cost. Usually used by: Distributers, Marketing firms etc.. Slower the turnaround of the product larger the margin and vice versa. Mark Ups are high on seasonal items, speciality items, demand inelastic items etc. Mark up price = unit cost /( 1- Desired return on sales )

4. How to Calculate A FMCG company sells a bar of soap to retailer . Unit Cost= VC+FC VC per unit = Rs.10, Total FC= Rs. 300000 Number of units produced= 50000 Unit cost= 10+ (300000/50000)= Rs 16 Now manufacturer wants to earn 20% mark up on sales Mark up price = unit cost/(1- desired return on sales)= 16/(1-0.2)=Rs20

5. Example Demand inelastic item Seasonal Items

6. Example Cost= US$ 0.08 Price= US$1.08 Mark Up= 1,250% Jewellery

7. Absorption Cost Pricing Mainly used by manufacturing firms. It uses standard costing techniques. It includes : Fixed cost Variable cost Selling and administering cost Advertisement cost It is also known as full cost pricing. + PROFIT

8. Example Delhi - 5.04lakhs Chennai - 5.44lakhs Hydrabad - 5.40lakhs Mumbai - 5.37lakhs Bangalore - 5.59lakhs Pune - 5.24lakhs

9. Target –Return Pricing  Similar to Absorption cost pricing. The difference is in fixing the profit margin. The profit margin/ mark up is fixed by considering the ROI . Firm will have return objectives, like 5% of invested capital, or 10% of sales revenue. Then you arrange your price structure so as to achieve these target rates of return. Market leaders or monopolists uses this pricing strategy.

10. How to calculate Investment of a pen manufacturer = Rs1million Total sales 50000 Expected ROI= 20%, Unit cost of a pen =Rs 16 Target return price= Unit Cost +( Desired return * Invested capital)/ Unit sales TRP= 16+(0.2* 1000000)/50000 = Rs 20

11. Example Market Leaders ensuring target sales

12. Example ITC Cigarettes

13. Perceived Value Pricing Pricing on Perception To increase prices without damaging customer relationships is by adding to the perceived value of your product or service

14. Examples

15. Examples John Deere Tractor Perceived value Durability Reliability Service Longer warranty

16. Examples

17. Going Rate Pricing Setting a price based on market price basis. Used for homogenous products/ Oligopolistic market Costs are difficult to measure/competitive response is uncertain

18. Competitors ‘parity method Premium pricing Discount pricing

19. Examples Telecom Industry Airlines Industry

20. Examples Banking Industry Electronic goods

21. Auction Type Pricing electronic market places are selling a diverse range of products to dispose of inventories and goods Three major types of auctions- English Auctions (one seller many buyers) Dutch auctions (one seller many buyers and vice versa) Sealed bid Auctions (supplier submit only 1 bid) Example- Government Biddings

22. Examples of English Auctions

23. Examples of Dutch Auctions 1 buyer many sellers Google IPO Bidding 1 seller many buyers

24. Thank You!!!