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.