Various types of Pricing Methods in Marketing

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Pricing methods in marketing- if some of the various factors are known which includes customers’ demand schedule, competitors’ price, cost function the company can set its pricing with ease. Price is the only element in the marketing mix that brings revenue, so pricing is very crucial part of the marketing mix.

Three major considerations in price setting:

Pricing methods in marketing are selected by a company keeping in mind the three major considerations in price setting:

  • Cost sets a floor to price
  • Price of substitutes and competitors’ prices set an orienting point
  • How customers assess unique features set the price ceiling
Three Cs model for Price Setting Pricing Methods in Marketing
                                                                                                                        Three Cs model for Price Setting                                                                                                                                                                        (Pricing Methods in Marketing)

Six pricing methods in marketing

  • Markup Pricing: In this method, a standard markup is added to the products’ cost. Markups are higher on seasonal products so as to cover the risk of not selling, specialty products, demand inelastic products such as medicines, slower-moving products, and products with high storage and handling cost. This method among the other various methods of pricing in marketing is used by companies only if the markup price is able to actually bring in expected sales.

                                             Markup price=  unit cost/(1- desired return on sales)

  • Target Return Pricing: A company sets a price based on the target rate of return on investment. This method among the various pricing methods in marketing is used by public utilities

                            Target-return price= unit cost + {(desired return * invested capital)/unit sales}

  • Perceived Value Pricing: Most of the companies now set their price based on customers’ perceived value. Perceived value includes customer support, how customers’ perceive products’ performance, channel deliverables, warranty, suppliers’ trustworthiness and reputation.
  • Value Pricing: Many companies in past used to follow this method out of the various pricing methods in marketing. They offer a high-quality product at a very low price to their loyal customers. This method is not just a matter of keeping your prices lower rather it focuses on re-engineering company’s operations so that it can become a low-cost producer without sacrificing the quality of offerings. By this, a company is able to attract a large number of value-conscious buyers. Two types of value pricing strategies that companies follow are:
    1. Everyday Low Pricing (EDLP): In this pricing policy among various pricing methods in marketing companies charge a constant low price. They never do price promotions or special sales Walmart is the king of EDLP
    2. High-Low Pricing: Companies following this pricing policy among various pricing methods in marketing charge higher prices every day but they frequently run promotions with temporarily keeping their prices lower than EDLP.

     

  • Going Rate Pricing: In this companies keep their prices based on competitors’ prices. Smaller firms usually follow this policy among the other pricing methods in marketing- they follow the leader and keep their prices accordingly
  • Auction-Type Pricing: This type of pricing is gaining popularity among the various pricing methods in marketing. Three types of auctions and their respective pricing policies are discussed as follows:
    1. English auctions: These auctions have one seller and many buyers. On websites such as Amazon, eBay seller puts an offering and there are many buyers bidding who keeps on bidding until the top price is reached. The persons who bid the highest gets that offering. These auctions are also known as Ascending bids and used for selling products as real estates, antiques, used vehicles etc.
    2. Dutch auctions: It has one buyer and many sellers, or one seller and many buyers. In the first type, buyer announces the product he/she may want to purchase, and sellers compete to offer the lowest price to that customer. In second type seller announces a high price for his offering and then slowly keeps on lowering the price until a bidder accepts that.
    3. Sealed Bid auctions: Suppliers (let would be) submit only one bid and they can’t know each other’s bid. These auctions are used by government departments, big public and private companies who want supplies. Suppliers are concerned about their profits but they have to bid as low as possible to improve their chance of winning the contract.

     

The above-mentioned pricing policies are available for companies to set their pricing. Companies have to select among the various pricing methods in marketing available.

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