Price is the sum of the values that consumers exchange for the benefits of having or using the product or services.
Types of cost
Let us first look at the types of cost. Types of costs are fixed costs the type of costs which occur at the establishment of the organization and relatively not replenished routinely. The fixed costs are not affected with the production or sales level. Variable costs that type of costs which occur with each extra unit produce or sale. Variable costs are directly related with the level of production. Total costs are the sum of the fixed and variable costs.
Factors affecting pricing decision
These are the factors that affect pricing decision: Internal factors of the firm such as marketing objectives; marketing mix strategy; cost ; organizational consideration ; external factors such as the market ; demand; competition, and environment.
General pricing approaches
This can be cost -based price, cost-plus pricing, adding a standard markup to the cost of the product and breakeven pricing. The other approach is value -based pricing: setting price based n buyers perceptions of value rather than on the seller’s cost. There is also another approach: competition-based pricing. This is setting prices based on the prices that competitors charge for similar products.
New Product Pricing Strategies
This are market skimming pricing and market penetration pricing .Market skimming pricing is setting a high price for a new product to skim maximum revenues from the segments willing to pay the high price. Market penetration pricing is setting a low price for a new product in order to attract a large number of buyers and a large market share.
Product Mix Pricing Strategies
This includes product line pricing, optional product pricing, captive product pricing, and product bundle pricing.
Price Adjustment Strategies
Discount and allowance pricing which includes cash discount for those customers who pay their bills punctually or in advance; quantity discount for those customers who purchases in bulk
Quantity; functional discount for the member of the trade channel who performs certain function for seller, such as selling, storing, and record keeping; seasonal discount for those buyers, who purchase merchandise or services out of season; allowance , the promotional money paid by the manufacturers to the retailers against a performance or as per agreement.
Segmented pricing is selling a product or service at two or more prices, where the difference in prices is based on the differences in the environment of the segment. Another adjustment strategy is psychological pricing; price is based on the perceptions of the consumer for the product. Reference price is price that buyers carry in their minds and refer to when they look at a given Product
Promotional pricing is temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.
Geographical Pricing is in which goods are placed free on board a carrier and the customer pays the actual freight from the factory to the destination. Uniform-delivered pricing is a geographical pricing strategy, in which the company charges the same price plus freight to all customers, regardless of their location. Zone zoning is a geographical pricing strategy, in which the firms divide their clients’ location in different zones as per distance with the production house and fix charges for each zone. All customers within a zone pay the same price.
Basing point pricing is a geographical pricing strategy in which the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer location, regardless of the city far from the production house. Freight-absorption pricing is also a geographical pricing strategy in which the company absorbs all or part of the actual freight charges in order to get the business.