The document discusses various methods for setting prices, including: 1) Mark-up pricing which calculates costs and adds a desired profit margin. 2) Target return pricing which sets a price to achieve a desired profit on investment. 3) Perceived value pricing which bases price on how customers value both tangible and intangible benefits. 4) Auction-type pricing including English, Dutch, and sealed-bid auctions which determine price through competitive bidding processes.

1. A STEP OF PROCESS OF SETTING THE PRICE
Presented by- Apurv kumar maurya
MONIRBA(ALLAHABAD)

2. Price
Price is not just a number on a tag .
It comes in many forms .
Rent ,tuition fees ,fares wages and commissions
are all the price you pay for some good or
service
A firm must set a price for the first time
• when it develops a new product
• When it introduces its regular product into a new
distribution channel or geographical area

3. Steps in setting the price
• Selecting the pricing objective
• Determining demand
• Estimating costs
• Analyzing competitors costs ,prices and
offers
• Selecting a pricing method
• Selecting the final price

4. Category of pricing methods
Perceived value pricing
Competition based pricing
Total cost based pricing

5. Mark-Up Pricing
• What is mark-up ?
• Mark up refers to the value that a player
adds to the cost price of a product.
• Mark up is the profit for the player .
• Selling Price =Cost Price+ Mark up

6. Mark-Up Pricing
The mark-up pricing method,
calculates all the costs of
purchasing or producing the
product and then adds a desired
mark-up to it.

7. Formula of Mark-Up Price
Unit Cost/(1-desired return on sales)
Where:
Unit Cost = VC + ( FC/Unit Sales )
VC = Variable Cost
FC = Fixed Cost

8. Fixed, Variable &Total Cost
Total cost = Fixed cost + variable cost

9. Fixed Cost &Variable Cost
Fixed Cost
• Time Related
• Incurred whether the units
are produced or not.
• As the units produced
increases, fixed cost per
unit decreases and vice
versa
• Rent, Salary, Insurance, Tax
etc.
Variable Cost
• Volume Relate
• Incurred only when the
units are produced.
• Variable cost remains
same, per unit
• Material Consumed,
Wages, Commission on
Sales, Packing Expenses,
etc

10. Illustration
• Suppose a unit cost of a product ’A’ is Rs. 80 and
the firm has desired return on sales of 20%.
• Markup price =80 / ( 1 - 0.2 ) = Rs.100
• Cost based pricing method
• Cost is easy to determine as compared to demand

11. Mark-up Pricing
0
20
40
60
80
100
120
140
160
Manufacturer Wholesaler Retailer Consumer
MARKUP
COST
12 18 60 00
60 72 90 150
P
R
I
C
E

12. Target Return Pricing
• Formula based pricing method .
• The price is set for a product to return a
desired profit on investment .
• Manufacturer assumes that a particular
quantity of the product will be sold.
• Used by Market leaders or Monopolist.

13. Target Return Price
Unit Cost + (Desired Return × Invested Capital)
Unit Sales

14. Target Return Pricing
• Invested capital = $1000000
• Unit Cost = $16
• Desired Return = 20%
• Unit Sale = 50000
• Total Fixed cost = $300000
• Variable cost = $10 per unit
• Target-Return Price = 16 + (0.2×1000000)
50000
= $20 per unit

15. Target Return Pricing

16. Target Return Pricing
• Break –Even Volume = Total fixed cost
Price-VC (per unit)
300000
20-10
= 30000 units
Contribution margin = Price-VC (per unit)

17. Target Return Pricing

18. Perceived Value Pricing
0
20
40
60
80
100
Product
Benefit 3
Benefit 2
Benefit 1

19. Perceived Value Pricing
• Perceived value is made up of host of inputs
[ 1 Buyer’s image of the product performance
2 The warranty quality .
3 Customer support ,etc.]
and softer attributes .
[ 1 Supplier’s reputation
2 Trustworthiness
3 Esteem ,etc ]
 Firms use marketing program to communicate
and enhance perceived value in buyer’s mind

20. Perceived Value Pricing
0
5
10
15
20
25
30
35
40
45
Car 'A' Car 'B' Car 'C' Car 'D'
Speed
Mileage
Comfort

21. Perceived Value Pricing
CAR - A CAR - B CAR - C
Initial price 200000 250000 50000
Maintenance
Cost Over
10 years
150000 100000 50000
Fuel Cost Over
10 years
300000 275000 25000
Perceived value
Of CAR -B
200000( A) +50000 ( Savings in Maintenance )
+ 25000 (Saving in fuel expenses) = Rs. 275000

22. Auction –Type Pricing
• An auction is a process of buying and
selling goods or services by offering them up
for bid, taking bids, and then selling the item
to the highest bidder.
• A bid is an offer to pay a particular amount of
money for something that is being sold.
• There are three major type of auctions and
their separate pricing procedures .

23. English Auctions
• An English auction is an open-outcry
ascending auction.
• Also known as ascending bids .
• Have one seller and many buyers .
• Fully transparent, as the identity of all
bidders is disclosed to each other during
the auction.

24. English Auctions
It proceeds as follows.
 The auctioneer opens the auction by announcing a Suggested
Opening Bid, a starting price.
 Then, the auctioneer accepts increasingly higher bids from
the floor.
 The highest bidder at any given moment is considered to have
the standing bid.
• If no competing bidder challenges the standing bid within a
given time frame, the standing bid becomes the winner, and
the item is sold to the highest bidder at a price equal to his or
her bid.

25. Dutch Auctions
• It is also known as Descending bids .
There are two types
1 ) One seller and many buyers :
An auctioneer announces a high price for a product
and then slowly decreases the price until a bidder
accepts .
2) One buyer and many sellers :
The buyer announces something he or she wants to
buy, and potential sellers compete to offer the lowest
price .

26. Dutch Auctions
Example:
• Let’s assume Company XYZ WANT to sell 10 million
shares using a Dutch auction. To participate in a
Dutch auction, an investor typically opens an
account with Company XYZ’s underwriter, obtains a
prospectus and access coder.
• During biding ,investors indicate how many shares
they are willing to buy and the price they are willing
to pay.

27. Dutch Auctions
Company XYZ’s Dutch Auction
Price Bids Share
( In Million )
Cumulative
Share
$ 40 0 0 0
$ 36 2 1 1
$ 35 4 4 5
$ 34 10 5 10
$ 33 3 3 13

28. Sealed-Bid Auctions
• Also known as blind auction.
• Bidders simultaneously submit sealed bids.
• No bidder knows the bid of any other
participant.
• The highest bidder pays the price they
submitted.
• Each bidder is characterized by his/her
monetary valuation of the item for sale.

29. Sealed-Bid Auctions
• Each bidder is given just one chance to bid.
• In sealed-bid auction, it is advantageous for a
bidder to gather information about the
competing bids before deciding on his own
bid. Therefore, the "privacy" issue is essential
in this auction format.

30. Going Rate Pricing
• The product is priced as per the rates
prevailing in the market .
• the company sets a price of its products and
services in line with the competitor’s prices
• This type of pricing is mostly followed
in Oligopolistic industries where they deal in
homogenous goods, and in which less
variation is seen from one producer to
another.

31. Going Rate Pricing
• The prices set by the market leaders are
followed by all the organizations in the
industry.
• With a going-rate pricing method, companies
feel secure as they are sure to get the
customers because of the same rates
prevailing in the industry.

32. EDLP
• EDLP means Every Day Low pricing .
• Every day low price (EDLP) is the pricing
method used by retail stores that provides
low prices to the customers every single day
without any special pricing discount, sale,
comparison shopping etc.
• EDLP helps the retail stores to reduce their
demand fluctuation that would occur due to
promotions on some days.

33. EDLP
• Stores like Wal-Mart and Spencers have
used the EDLP strategy to a very good
extent for their success.