Pricing Strategies used by different market players

Pricing Strategies used by different market players

1. Market Structure: Pricing

2. DETERMINANTS OF PRICE Demand for it; Cost of production and capacity; Objectives of the producers; Nature of the product; Nature of the competition in the market; Environment policy or the Government policy pertaining to it.

3. Contd.. Competitors: Price of competing products, New firms entering the market, Pricing policy changes by the competitors. Government Policy Custom and excise duties and other taxes Licensed capacity Controlled and duel pricing Substitutes and Complements

4. Pricing Methods     Cost Plus Pricing:   Price=AVC+AVC (m) AVC (m)= AFC+NPM Where AVC =Average variable cost AVC (m) = Mark up or gross profit margin (GPM) AFC = Average Fixed Cost NPM = Net profit margin

5. Cost plus pricing is useful in the following cases:   (i)   Public utility pricing (ii)  Product tailoring (iii) Pricing products that are designed to the specifications of a single buyer.

6. Penetration Pricing: start with a low price initially and subsequently increased when the demand for the product is established. If, however, the prices are set too low, the consumers may think that the prices have been kept low at the cost of the quality of the product.

7. Price Skimming Higher prices (three or four times the ex-factory price) of new product to take advantage of the consumer behaviour(to take advantage of liking of elite group of customers.) The prices may be subsequently reduced when competitors come in.

8. Market leader pricing Low price of a product of the product line low, even if negative contribution with the aim to earn profit from other products of the product line or the same product in future. (camera price low and higher prices on films so that the two combined give profit.)

9. Pricing of skills Demand and supply of skills in the market. The concept of opportunity cost becomes more relevant in case of pricing of services. Pricing of spares The spares, which are easily available, may be priced low and the parts, which are not easily available, and the proprietary item may be priced slightly high. The general thumb of rule is that the total price of all the assembled parts should not be more than the price of the assembled whole.

10. Pricing of leases and licences The pricing strategy is based upon the utility the consumer or user perceives in the lease or license. The price is set accordingly.

11. Multiple Product pricing The point of equilibrium is determined by the point where the MC =CMR. A vertical line drawn from the point of intersection will intersect various MR curves at different points, which will determine their prices.