Product pricing policies/approaches

1. Cost —Plus Pricing
All the costs incurred during production are totaled up and a reasonable margin is added. That is, all costs will be covered and a desired profit level will be achieved. For example, cost-plus pricing by intermediaries, or construction companies, i.e. they add a mark-up in order to make profits thereby increasing prices to the final consumer.
2. Value- Based Pricing -
This is setting a price based on the buyers’ perception and not the sellers’ perception. A company using value-based pricing may find out what value buyers assign to different competitive offers.
This kind of pricing is difficult to arrive at due to the varying consumer perceptions.
Some consumers, a high price may signify quality or prestige while, a lower price may be viewed as a bargain or even an inferior quality. Psychological pricing is designed to encourage purchases that are based on emotional rather than rational responses. For example odd pricing,
e.g. 1991= is viewed as lower than 200/=. The law of attractive numbers may also be used by consumers to make a choice on a product. For example, Ksh. 88 may be viewed as more attractive than Ksh.99 or Ksh.77. Thus, more and more marketers have adopted value-pricing strategies — offering just the right combinations of quality and good service at a fair price.
3. Demand - Oriented Pricing
Pricing based on the demand level prevailing in the market. That is, marketers set a higher price when demand is higher and vice versa.
4. Competition-Oriented Pricing
This is setting a price based on what the competitors charge for similar products, for example, the going-rate pricing. Marketers must decide to keep their prices higher or lower than competitors depending on their objectives.
5. Professional Pricing
Used by professional people with great skill, qualification or experience. Some professionals charge specialized fees, e.g. doctors, lawyers and other professionals.
6. Promotional Pricing
This is a strategy where by the marketers temporarily price products below the list price and sometimes even below the cost price to increase the short-run sales. This is a pricing system that attracts customers to buy.
Grocery shops and the supermarkets will price a few products as loss leaders to attract the customers to the stores. Marketers use a lot of bargain and appeal 9 special event pricing) particularly during special occasions, events or holidays, e.g. use of discounts or allowances, cash rebates, low interest financing, free-maintenance and many other incentives.
Disadvantages of Promotional Pricing
i) Used too frequently and copied by competitors, price promotions can create “deal prone” customers who wait until products go on sale to make a purchase.
ii) Constantly reduced prices can reduce a brand’s value in the eyes of a customer.
The main advantage of promotional pricing is that the strategy can be used as a “quick fix” instead of sweating it through the difficult process of developing effective long-term strategies for building a formidable brand image.
7. Geographical Pricing
An organization must decide how to price its products in-different locations (regional pricing).
Marketers that use this strategy appreciate the fact that, customers in various regions have different characteristics, particularly, demand and level of income.
8. Other Pricing Policies include:—
i) Single and variable pricing -
ii) Pricing of new products — skimming or penetration
iii) Product mix pricing — product line, captive — pricing (products that must be used together), optional pricing (pricing of accessory products along with the main product) and by-product pricing in order to make the main product’s price competitive), etc.

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Titany answered the question on October 6, 2021 at 13:30