Product Quality and Leadership

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C.7.3 Pricing methods

(a)
Mark-up pricing: In this method the seller simply adds a profit margin to the purchase price of the product e.g. if the product was bought at N and the expected profit margin markup) of the seller is N, the sale price will be Nb) Target Return Pricing: Here the organisation fixes a price that will enable it achieve a specified level of profit. To illustrate, assume an organisation could produce and market
100,000 units of a product at a total cost of N and wishes to achieve a profit of say
40% the selling price will be N x 40% + (200,000)/ 100,000 = N. c)
Demand Differential Pricing (Price discrimination): This has to do with charging different prices for the same products depending on type of customer, packaging, brand, place and time of purchased) FOB Point of Purchase Pricing: The producer quotes the selling price at the point of production and the buyer is expected to incur the cost of shipping the product to his/her place of business. e)
Market Penetration: This has to do with the setting of low prices for products (especially at the introductory stages) with the aim of stimulating demand and sales. This pricing strategy will be effective where the market is highly sensitive to low prices and unit production cost falls in proportion to increases in sales volume. f)
Market Skimming: This refers to the setting of a high price fora product with the aim of making a lot of profits within a very short time. Price (market) skimming will be effective where the product is scarce and an innovation different from existing brands. g) Marketing Oriented Pricing: It is suitable for pricing decision on new product marketed through several distribution channels. This can be illustrated through atypical process of marketing anew product such as defining the target market, identifying competitors, deciding product position, designing alternative channels of distribution etch) Prestige Pricing: This type of method could bean attempt to convey an image of quality, maintaining market share and shielding competitors. It’s a ways of taken advantages of the perception of consumer about a product e.g. Gold jewelries, banking product which are targeted at high net worth individual because of their operating deposits substantial. i)
Leader Pricing: This is a technique of using a product as a bait to attract customers to some other products. These products are usually low price in order to attract customer in the end is persuaded buy a more expensive product. j)

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