PRICING METHODS
Pricing is an
important element of the marketing mix. Pricing is affected not only by the cost of manufacturing
the product, but also by (i) the company's objectives in relation to market
share and sales; (ii) the nature and intensity of competition; (iii) stage of
the product life-cycle at which the product is currently positioned; (iv)
nature of product whether as consumer or industrial product and if the former
whether it is a luxury or necessity. Before making any pricing decision
it is important to understand all these factors.
Although there are
several factors affecting the pricing decisions, it would be useful to
discuss the pricing methods most commonly used. These methods are:
1.
Cost-plus or Full-cost
pricing
2.
Pricing for a rate of
return, also called target pricing
3.
Marginal cost pricing
4.
Going rate pricing,
and
5.
Customary prices.
The first three
methods are cost-oriented as the prices are determined on the basis of costs.
The last two methods are competition-oriented as the prices here are set on the
basis of what competitors are charging.
1. Cost-plus or
Full-cost Pricing
