Quotation is the fixed price offered to customers in response to render notice. It has legal binding and when a customer accepts, it can’t be changed. Whereas, tender is the response to an invitation of tender which is submitted by a prospective supplier.Invitation of tender is the open request form which is published in printed media (local news newspaper). It can be issued for construction contractor, machinery supplier, information technology, etc. the whole process starting from inviting tender, submitting tender and filling quotation is part of tendering processQuotationQuotation is the formal document or document of promise given by supplier to ... Read More

Request proposal method is a document, which explains the project, asks for bids from contractors. In this, both technical and financial proposals are submitted in separate envelopes.Technical proposal is evaluated first and points are awarded according to the pre evaluation criteria. After attaining minimum or qualification marks, only technical proposals are evaluated. Averages of two proposals are calculated and a contract will be awarded to the bidder who gets the highest points.Company will collect information about suppliers. Sometimes, companies will send requests for proposal documents to selected suppliers. Suppliers will send their pricing, capabilities and their uniqueness among competitors.After reviewing ... Read More

It is a competitive pricing method, in which prices are decided based on quotation/estimated price or in sealed bids. This method is generally used in construction/contract business.In this, a tender notice is printed in the newspaper. Work proposals, type of job, quality, duration of project etc. are printed in the newspaper. In reply to the notice, interested parties send their sealed bid stating their price, particulars before deadline.On the due date, submitted sealed bids are opened and allocated to bid at a lower price with satisfaction conditions. Company sets the price based on how competitors' costs the product.AdvantagesThe advantages of ... Read More

In transfer pricing, the capital of one enterprise is used in another enterprise. That means management of one company can control another company. The main objectives are separate profits and performance is evaluated separately.Secondly, it affects allocations of company resources. In this method cost incurred in one enterprise can be utilized in another enterprise.The main purposes for transfer pricing are as follows −Direction of cash flows.Shifting profits.Minimize tax burden.Methods of transfer pricing are as follows −Comparable uncontrolled price method.Resale price method or resale minus method.Cost plus method.Arm's length principleEvery country has its own taxation rules. It states that the terms ... Read More

In the going rate-pricing method, price is determined on the basis of present rates prevailing in the market. Companies may set prices high or low depending on product/services to their competitor's prices.This method of pricing is useful for products/services which show fewer variations between producers. It is also called a competitive parity method. In this method, competitor's price is taken as base and price is set according to objectives, services offered and product quality.AdvantagesThe advantages of the going rate-pricing method are as follows −Competitor's price is taken as base.Uniform price in market.Misguiding customers is protected.DisadvantagesThe disadvantages of the going rate-pricing ... Read More

In target return pricing, price is determined based on the rate of return targeted on investment. Desired Return is also called Return on investment. This type of method is used in e-commerce.In this, selling price is determined with insights of the market department, other data and customers willing to pay. Now, targeted profit is deducted from the selling price and resulting amount tells about the limits of production cost.FormulaThe formula for target return pricing is as follows −TRP = UC + (DR*C)/USHere, TRP = Target-Return pricing, UC = unit cost, DR= Desired return, C = investedcapital, US = unit salesDR ... Read More

In the value pricing method, the price set is based on the value recognised by the customer. It is mainly a customer based pricing strategy, where price is not decided on cost of production.It is different from cost plus pricing. In cost plus pricing, price is determined based on product price. This type of method works for the companies, who are focusing on specific needs of customers. This strategy was useful for the products which are sold on customer sentiments or emotions.Value based strategy is used by various businesses to price their product/services. This strategy is based on the following ... Read More

In this competition based pricing method, the price is determined based on competition in the market. Price is determined by considering competition, price sensitivity and cost.Competitive pricing strategy is the strategy used by a company to fix the price of a product by keeping the view of competitors.This can be done in following ways −High price − By making modifications or adding extra features to the product, a higher price is set than its competitors.Low prices − Increasing volumes by maintaining the same product cost. By analysing the price structure of competitors with available resources and making necessary changes in ... Read More

In a demand based pricing method, the product price is determined by customer demand and product perceived value. In this, customer responses are considered and a suitable price is determined. Factors considered are manufacturing cost, location, market competition, quality etc.Some of the strategies are as followsPrice skimming − High price is set initially, to increase their value and then, the price is gradually decreased to increase their customer base.Price discrimination − Price is determined based on demand in market. Different markets/customers are charged differently for similar products.Value based pricing − Price determination is based on the actual value of the ... Read More

In Cost plus pricing method, a fixed percentage/profit margin is added to unit production cost which includes material cost, labour cost, overheads cost, manufacturing overheads etc. to get selling price.This type is more suitable, where there is no uniform production or each order is different.FormulaThe formula for cost plus pricing method is as follows −S.P. = PC (1+ PM)Here, S.P. = Selling price, PC = Unit production cost, PM = profit margin/fixed percentageAdvantagesThe advantages of cost plus pricing method are as follows −Simple to calculate.Increase in price can be justified.Price can be determined, if there is no market price.DisadvantagesThe disadvantages ... Read More