Pricing Methods and Strategies Subject: Managerial Economics MBA-Sem-I 2017-18 Unit-IV Pricing Methods and Strategies

Pricing Objectives To maximise profits To increase pales To increase the market share To satisfy customers To meet the competition To generate internal resources to finance expansion and growth To maximise the value of the firm for different stakeholders

There are four methods of pricing: Cost-based pricing Pricing Methods There are four methods of pricing: Cost-based pricing Competition based pricing Demand-based pricing Strategy-based pricing

1.Cost based prcing\ It is of three types: Cost-plus pricing: It is one where the profit margin (measured as a percentage of cost or selling price) is added to the total or full cost to arrive at the selling pricing Marginal cost pricing: Selling price is fixed in such a way that it covers fully the variable or marginal cost and contributes towards the recovery of fixed costs fully or partly, depending upon the market situation. Social cost –based pricing: Charging based on social cost is a system of charging extra for the users of a transport net work during peak hours to reduce traffic congestion.

2.Competition-based Pricing Here pricing is a very complex task. Sealed bid pricing Going-rate pricing Limit pricing

3.Demand-oriented pricing a) Price discrimination The objectives of price discrimination are: Develop a new market including, for exports Utilise the maximum capacity Share consumer surplus along with the consumer and not leave it totally to him Meet the competition Increase the market share b) Perceived value pricing c) Priority pricing

4.Strategy-based pricing Market skimming Market penetration Two-part pricing Block pricing Commodity bundling Peak load pricing Cross subsidisation Transfer pricing Loss Leader Pricing Predatory prcing Psychological pricing Flate rat pricing Precedence Model Transaction based pricing

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