Pricing Methods 

Deciding the price is one of the very critical decisions that higher management takes while launching a new product in the market.

If a product is from a big business organization and advertised well before launching, it will be considered as a branded product. The branded products have their unique names and identities so that they are sold expensive than non-branded products. Although supply and demand play an important role in the determination of price many other things like the product’s brand image, good advertising, etc. also influence the pricing decisions.

Pricing Methods

There are various pricing methods that are being used by business managers. Some of them are discussed below: 

Cost-Plus Pricing

Cost-plus pricing is easy to apply while pricing any product. In cost-plus pricing, the estimated cost of production of a product is calculated and then profit is added as mark-up. If there are many competitors in the market, it will be difficult for a business organization to sell its product with a high-profit margin.   

Competitive Pricing 

In competitive pricing, it is tried to set the price below or near to the price of the competitor’s product available in the market. 

While setting competitive pricing, it is essential to research the market to find out what are the other products available in the market and what are their prices. It is better to take a decision after checking all the prices.

Psychological Pricing

Psychological pricing is a method of pricing that is used to make the consumers feel the price less than the actual price. Although it is just a psychological technique. 

Most of the time we observe in the market that some products are sold with the price tag of $99 or $49. Though there is just $1 less than a complete figure of $100 or $50 while consumers think they are paying less. This perception of consumers is made possible just with psychological pricing.

Penetration Pricing

When a company introduces new products in the market, it is tried to set the price of new products less than competitors. It is a strategy to capture market share. A consumer will buy the new product when it will be cheaper than any competitive product as it is difficult to sell the new product at the price higher than the other products already available in the market. 

Price Skimming

The price skimming strategy is used when there is a new product invented or designed. In price skimming, the price is set high initially as it is considered that there was a high cost that occurred on the research and development of that product. We can have an example of different computer games that are expensive at their launch and their prices decrease after some months. In the same way, we can see the prices of cell phones as different models of cell phones are expensive at their launch but their prices decrease after some time when especially when new models arrive in the market.

Promotional Pricing

Promotional pricing is also an important pricing method. It is set for some days to promote the sale of s specific product. Most of the time it helps to sell the stock that is not being sold for some reason. We can have an example of fashion products that offer discount sales at the end of every season.     

Dynamic Pricing

Dynamic pricing is used when there are two or more groups of consumers for the same product or service. It also happens in the dynamic pricing that prices are set according to supply and demand. We can have an example of airlines that there will be less fare for the trip on normal days as compared to the summer holidays. Sometimes the airlines set different timings for day and night flights with some difference in their fares. Morning flights may be expensive as they carry people who want to join the office for a meeting or any other purpose after landing at the destination while it could also be assumed that night flights will carry the passengers who are free and have no such hurry to reach the destination. In that situation, it is considered that morning flights will be expensive than night flights.     

Appropriate pricing method in given circumstances 

Setting prices for a product is a quite difficult decision to take. The pricing methods discussed above are used when there is any decision being taken.

If a company wants to launch a new model of a cell phone in the market, the price skimming strategy is best suitable for it. If an airline is trying to set prices for its fares, dynamic pricing could be the best possible solution for it. 

If there is some issue a company is facing in the sale of any product, with the help of promotional pricing it could be resolved. If the company is planning to launch a new product, it is better to go for penetration pricing.

Understand the significance of price elasticity

Price Elasticity

Price elasticity is basically used to measure the response of demand when there is a change in the price of a product occurs.

Price Elastic Demand

When there are many alternatives available for a product, a little change in price may bring a significant decrease in profit. We can have an example of chocolate that is being sold for 50cent per bar. If the price is changed and increased 10% and the new price is set 55cent per bar, it is possible that there will be more than a 10% decrease in the demand for that chocolate. This phenomenon is called Price Elastic Demand.

Price Inelastic Demand

If there is no effect of change in price on demand, then there will be price inelastic demand. We can have an example of petrol prices as if the petrol price increases from 50cent per litter to 55cent per litter, the consumer will again consume the petrol in the same quantity and there will be no such effect on the petrol price. This phenomenon is called price inelastic demand.

Price elastic demand and price inelastic demand, both concepts that are important to keep in mind while the decisions regarding the prices are taken.  

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