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What are the pricing methods and its types?
Pricing methods tell about the price determination of goods/services by considering all the other factors. Factors include competitions, product cycle, company visions etc.
Pricing methods are divided into following −
- Cost oriented pricing method.
- Market oriented pricing method.
Cost plus pricing − with the help of this cost plus pricing method companies will arrive at the selling price of goods and services. In this method, direct material cost, direct labor cost and overhead costs are added to markup percentage and determines product price.
Markup pricing − In this method, some percentage of markup cost is added to the cost of product and selling price is determined
Target return pricing − In this method, a certain formula is used and product price is set by calculating with desired return on investment or profit. (Assuming product with this quality is sold in market)
Perceived value pricing − It is a price where a customer is ready to pay or it is a price set by companies by keeping customer expectations about the product in mind.
Value pricing − In this method, price is set based on perceived value than historical price
Going rate pricing − In this method, the product price is set based on competitor's price
Auction type pricing − this is the fast growing method in modern days. Examples for these kinds of pricing are eBay,OLX etc. these are further classified into English auctions (1 seller, many buyers), Dutch auctions(1 seller, many buyers or 1 buyers, many sellers) and sealed bid auctions(tenders floated, supplier submits their bids).
Differential pricing − in this method, prices are set based on the group of customers. In this the same product is sold to different customers at different rates. The reason behind is customers may vary with geographical area, product form, time etc.
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