Discuss pricing approaches/methods.

1. Demand Oriented Pricing: Focuses on the customers and their responsiveness to different price levels. This means that when demand is strong , price goes up and when it is weak , the price goes up .It involves determining the demand first then calculating the mark up needed for each channel member, then determine how much is available (cost ceiling) to produce the product. There is need to estimate the amount of products demanded at each price level.
This method is used by firms that sell directly to consumers and price decisions revolve around what people will pay. Determine the final selling price, mark-up required, then maximum acceptable/unit cost for production or buying a product. The range of acceptable prices used when the firm believes that price is the key factor in consumer decision making process. Price ceiling is the maximum the consumers will pay for a product. This requires understanding the elasticity of demand.
2. Cost oriented pricing: Emphasizes an organization’s production and marketing costs. An analysis of costs leads to an attempt to set price that generates sufficient profit. The main variations include:
a) Cost-plus pricing: Cost calculated then a % added to the final price Calculate the fixed and variable costs and add a predetermined cost to arrive at the price. It is a popular technique during periods of rapid inflation. Profit is stated as a % of costs, not sales and price not established through consumer demand. It is good when consumers are price inelastic and the firm has control over prices and for establishing a floor price, for which you can't charge less. It is very common with large projects or for custom – built items where it is difficult to estimate costs in advance.
b) Mark-up pricing : Common among retailers and may vary from one product category to another depending on turnover rates. It involves adding a % mark-up of costs or of the selling price. This means that the seller starts with the price paid to the supplier and then adding a % to it to reach the retail price to the customer.
c) Experience curve pricing: is based on the experience and learning that lead to more efficiency that is then used to predict how costs will behave over time. The process involves producing certain volumes in order to experience benefits and a high market share early in the product’s life This enables the firm to be in a competitive position by gaining cost-saving from learning sooner.
d) Break-even pricing/ target profit pricing: Involves setting price to break even on the cost of making and marketing a product or setting a price to make a target profit. The BEP is where TR = TC. It means that producing beyond this point generates increasing profits. It ignores market demand and competition.
3. Competitive Oriented Pricing: Involves setting prices based on the perceived reaction of the competitors especially with products that are homogeneous or similar. It is preferable if the marketer knows what the competitor is charging. The marketer can chose to be below, at or above competitor’s prices. It is however very difficult to determine especially in the resellers market. Variations include:
a) Going rate pricing- firm bases its prices primarily on the competitor’s prices with less attention given to costs or demand.
b) Sealed –bid pricing or tendering : a form of organizational pricing especially capital goods and special services in which prices are normally based on expectations of the competitor’s prices rather cost or demand.
c) Customer- focused pricing – based on relationship marketing .It focuses on long-term relationship between the firm and the customer’s future potential profit streams or benefits;

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Lellah answered the question on November 5, 2021 at 12:44