Pricing: objective: Methods

Pricing

Objective

Why company set price? this question comes in mind. their some of the objective give idea about set price

1. Company set price to earn Profit. Aim of company to manufacture product sell to customer and earn profit. in short, Maximize Profit. Profit may be long-run, or short-run.

2. Company set Price to increase sales volume. Company facing competition, over capacity, consumer mind set, Therefore company have to survive. For Survival company have make pricing strategies.

3. Company set price to grab maximum market. to increase market share.

4. Ultimately, Company have to grow

5. Company unveiling a new technology favor setting high price to maximize  market skimming. For example,  Sony introduced the world's first high-definition Television (HDTV) in Japan.

Pricing Methods

1. Mark up Pricing: Most preferable method is mark up pricing. Add a standard mark up to product's cost.

one of company's cost

Fix Cost                                10 $

Variable cost      300000$

expected unit sales = 50000

Unit Cost = Variable Cost + (fixed cost/unit sales) = 16$

Now, suppose manufacturer want to earn 20% on sales.

Mark up Price = unit cost/(1-desire return on sales (20%)) = 16/(1-0.2) = 20$

2. Target-Return Pricing:  Firm determines the price that would yield its target rate of ROI. For example, Company want to achieve a 20% ROI specifically $200000

Target Return Price: unit cost+ (desired return x invested capital)/unit sales

                                                    =16+ (0.2 x 1000000)/50000 = 20$

3. Going-Rate Pricing: It's price largely on competitors' prices. Changing more or less than major competitor/s. This method is quite popular. Where costs are difficult to measure or competitive response is uncertain.

4. Auction-Type Pricing: Growing more popular, specially on internet. Best example is Ebay.