Pricing Methods in Practice

PRICING METHODS IN PRACTICE:

Pricing policies are the decisions by a company determining prices to be charged for its products. There are a number of different pricing policies or strategies which a firm may adopt in order to achieve its pricing objectives.

i. Skim pricing:

It uses high prices to obtain a high proits and quick recovery of the development costs in the early stages of a  product?s life before competition intensities.

ii. Penetration pricing:

Is the use of lower than normal prices to increase market share. It is also used to establish a new product in a market which is expected to have a long-life and potential for growth.

iii. Mixed pricing:

It is a policy which initially uses skim pricing and then, as competition increases, price cutting, sometimes even below cost, to penetrate the market, increases market share and eliminate competition.

iv. Destructive pricing:

It involves reducing the price of an existing product or selling a new product at an artiicially low price in order to destroy competitor?s sales.

v. Differential or discrimination pricing:

It is the use o different prices for the same product when it is sold in different locations or market segments.

While small buyers or those loacted in remote areas may be charges a higher price to cover the additional distribution costs.

vi. Absorption pricing:

It involves the use of lower than normal prices ether to launch a new product or to periodically boost the sales of existing products.

vii. Marginal cost pricing:

It is something used when a firm has some spare capacity which it wishes to use without diverting a way from its regular business.

Essentially, a firm incurs fixed costs such as rent, whether or not it is operating at full capacity.

viii. Negotiable pricing:

It is common in industrial markers.

The price is individually calculated to take account of cost, demand and any speciic customer requirement.

ix. Single pricing:

It involves a policy of charging one price to everyone. Examples include standard bus fares, prices of books etc.

x.       Market pricing:

It is determined by the interaction of demand and supply.

The seller has little control over the price in the situation which is likely to fluctuate daily.

xi.      Sealed-bid pricing:

It is widely used in goverment, public sector and other private sector markets whereby suppliers are invited to tender(offer a fixed price) for the supply of specified goods or services.