Professional Documents
Culture Documents
Tuition
Education
Interest
Use of money
Rent
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fee
Services of a physician or
lawyer
Retainer
Lawyers or consultants
services over a period of
time
Toll
Salary
Services of an executive or
other white-collar worker
Wage
Services of a blue-collar
worker
Commission
Dues
Membership in union or a
club
Break-even Analysis
Break even is a cost oriented pricing
approach. A seller analysis preliminary
forecast of sale to determine at what point
sales begin to exceed cost and the earning
of the profit begins, as well as how much
profit may be earned on a given volume of
sales.
Break-even Formula
Break-even point =
Total fixed cost
price variable cost (contributed marginal cost)
Break-even assumptions
The selling price remain same throughout period.
F.C and V.C are separated.
F.C and V.C do not change throughout the period.
PRICING STRATEGIES
1. SKIMMING PRICING STRATEGY:
Price skimming is the strategy of charging a
highest possible price for a product during the
stage of introduction of its life-cycle. The seller
essentially skims the cream off the market to
cover the high cost of research and development
(R&D). This is happening mostly in pharma
companies. Many consumers are willing to pay a
high price for a innovative product, either
because of its novelty, prestige, or status,
uniqueness or quality. This is only effective
when the firm is facing an inelastic curve.
ADVANTAGES:
Skimming generates an initial cash flow
to cover R&D.
DISADVANTAGES:
It encourages the entry of competitors (high
margins)
It results in a slow rate of diffusion and adoption.
Company could develop negative publicity of lower
the price.
ADVANTAGES:
It results in fast adoption and diffusion.
It creates good will among users.
It creates cost control and cost reduction
pressures from the start.
It discourages competitors to enter in
market.
Low price acts as a barrier to enter.
PREMIUM PRICING
STRATEGY
A company that plans to develop an
imitative new product, company
might decide to use a premium
pricing strategy while producing a
high quality product.
By-Product Pricing
Setting a price for by-products in order to
make the main product price more
competitive.
1. CASH DISCOUNT
A cash discount is a price
reduction who buy and pay their bills
promptly . A typical example is 2/10, net
30 which means that although payment is
due within 30 days the buyer can be
deducted 2% more if he will pay bill within
10 days . This discount must be granted to
all buyers meeting these terms
QUANTITY DISCOUNT.
A quantity discount is a price
reduction to buyer who buys large volume ,for
example :
Rs 10/= per unit for less than 100 units.
Rs 9 = per unit for 100 or more units
SEASONAL DISCOUNT .
A seasonal discount is a price
reduction to buyers who buy goods out of
season ,for example: Hotels at Murree offers
discount in off seasons. Air lines offer seasonal
discount in their lower selling periods .
Seasonal discounts allow the
seller to keep production steady in these periods .
Cumulative Discount
Cumulative discount is based on
the total volume purchased over a specified period
Allowance
Allowance is another type of
reduction from the price list. This
reduction seller offers to buyer for
turning in an old item when buying
new one. Trade-in allowance is most
common in the automobile industry.
Allowance
In some other words allowance can be
described as:
Promotional money paid by manufacturer as a
reward to channel member for participating
in promotion and sales support programs
(paying early\ in advance)
CUSTOMER-SEGMENT PRICING
Different customer groups are
charged differently for the same
product for example PIA charges one
fare for adult and one for infant
similarly musums often charge a
different price as admission fee to
student and senior citizens. Similarly
businessman charges low price to
regular and high to irregular
customers.
Location Pricing
A same product is price differently at
different locations even though the
cast of offering at each location is the
same suppose: a theater varies its seat
price according to audience
preference for different locations.
Time Pricing
Prices are charged differently by
some organizations from their
customers at different times suppose
PIA charges fare from customers
different at morning and night coach
flights or PTCL charges different call
rates at early morning from 6am to
6pm and from 6pm to 9:30pm half
and from 9:30pm to 6am one forth
External Factors
Internal Factors
Marketing objectives
(survival)
Marketing mix strategy
Cost
Organizational
considerations
Pricing
Decisions
Competitions
Nature of the
market and demand
Other environmental
factors, like;
Economic condition
(Boom, Recession)