1. What is cost pricing?
The cost pricing is the theory that the price of an object is determined by the sum of the cost of the resources that went into making it. The cost can compose any of the factors of production including labor, capital, or land and taxation.
2. What is full cost pricing.
Full cost pricing is a practice where the price of a product is calculated by a firm on the basis of its direct costs per unit of output plus a markup to cover overhead costs and profits. The overhead costs are generally calculated assuming less than full capacity operation of a plant in order to allow for fluctuating levels of production and costs.
3. What is the guiding principle for full cost pricing?
The guiding principle underlying the Full Cost Pricing Policy is that a government business should not enjoy any net competitive advantage (or disadvantage) in respect of its private sector counterparts simply because of its public sector ownership. That is, the policy aims to achieve competitive neutrality between public and private sector businesses
4. What’s the difference between costing and pricing
Costing involves determining the value of resources consumed in the production of goods or the provision of a service. Costing's role in pricing is to act as a benchmark against which pricing and production decisions can be made. Pricing refers to the process of determining a figure at which products or services will be exchanged in the marketplace. The focus on pricing is on the income received from the exchange of the good or service.
5. What is market based pricing?
A pricing model wherin the concern is how to price , so that it can affect the company’s position in the marketplace. Value is included in this notion of price, and the underlying marketing theme is to set prices at ‘what the market will bear’. The assumption behind market-based pricing techniques is that prices are a major factor in achieving competitiveness.
6. What are the various methods of market based pricing?
- Penetration pricing
- Skimming
- Perceived value pricing
- Psychological pricing
7. Define Penetration pricing
Penetration pricing involves setting prices at a sufficiently low level to make them attractive to the mass market. The aim is to achieve high initial sales, which are maintained during the life cycle of the product. An associated aim is to deter competitors. Penetration pricing is particularly appropriate for products where unit cost reductions can be achieved through initial mass production. Setting-up costs are usually high and initial development costs are recovered over a long period. The task of marketing is to ensure that customers retain interest during the life of the product.
8. Define Skimming
A skimming approach adopts a high-price strategy, charging what the market will bear. The aim is to ’skim the cream off the market’. This policy is particularly attractive to a company with a new and unique product. When the cream has been skimmed, prices can be progressively reduced.
9. Define Perceived value pricing
Perceived value pricing determines prices from assumptions made about the beliefs that consumers have of the value of the product to them. These assumptions may be founded on market research aimed at establishing in buyers’ minds values about the basic product and the various special features in the product that appeal to them. If the company charges more than the buyer-recognized value, sales will suffer. Revenue may also fall below attainable levels if prices are lower than the perceived value.
10.Define Psychological pricing
Many consumers use price as an indicator of quality. Prestige pricing uses higher prices to promote the idea of value and status. Price levels can be set just below a round figure, for example Rs 9.99 rather than Rs 10.00. These pricing points, as they are called, persuade people to think that the price is in a lower range than they expected. Value for money can be emphasized by the effective presentation of discounts and free offers. The perceived value of offering one item free if four items are purchased may have a greater impact than a 20 per cent discount offered over the whole five purchases.
