GENERAL PRICING APPROACHES

The price the company charges will be some where between one that is too low produce a profit and one that is too high to produce any demand. Company follows the below general approaches to determine the price for a product.
• Cost based approach
• The buyer based approach
• The competition approach
They are summarized below:
• Cost based on approach: In cost based pricing includes
a. Cost plus pricing: The simplest pricing method is cost plus pricing-adding a standard markup to the cost of the product that means adding the expectations profit with the total cost of the product determine the price in cost plus pricing approach. Suppose-variable cost 10 TK, fixed cost 300000 TK, Expected unit sales 50000
Them unit cost = variable cost + Fixed cost/ Unit sales
= 10 + 300000/50000
= 16 TK.
If the company wants to earn 20% profit them price will be
= Unit cost/(1-Desired return on sales)
= 16 / 1 - 0.2 (20% )
= 20 TK.
b. Break even pricing (target profit pricing): The firm tries to determine the price at which it will break even or make the target profit it is seeking. Break even pricing or target profit pricing uses the concept of a break even chart, which shows the total cost and total sequente expected at different sales volume levels. The break even chart is as follows:
1000_|_
........._|_
800._|_
........._|_
600._|_
........._|_
400._|_
........._|______________Fixed cost 200._|_|__|__|__|__|__|__|_______
( * )10 20 30 40 50
* Sales volume in units (Thousands)
Figure: Break Even Chart for determining target price
In above figure, fixed costs are 3,00,000 TK. Regardless of sales volume, variable costs are added to fixed costs to form total costs, which rise with volume. The total revenue curve starts at zero and rise of 20 TK. Per unit.
Break Even Volume = _F_i_x_e_d_c_o_s_t_
Price-variable cost
=_3_0_0_0_0_0_0_
20-10
= 30,000 units
• Buyer based approach: Buyer based approach means value based approach. An increasing number of companies are basing their prices on the products perceived value. Value based pricing uses buyer's perception of value not the seller's cost as the key to pricing. Value based pricing means that the marketer can not design a product and marketing program and them set the price. Price is considered along with the other marketing mix variable along before marketing is set.
• Competition based pricing: Competition based pricing is setting prices based for similar on the prices that competitors charge for similar product. One form of competition based pricing is going rate pricing in which a firm bases its price with less attention paid to its own costs or to demand. The firm might charge the same more or less than its major competitors. They charge their prices when the market leader's prices change, rather than when own demand or costs change.