Page 293 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes 14.1 Objectives of Pricing Decisions

The following are the key objectives of pricing decisions:
1. The important pricing objective is to exploit the firm’s competitive position in the market
place.

2. The products are priced in such a way that sufficient resources are made available for the
firm’s expansion, developmental investment, etc.
3. Some companies adopt the main pricing objectives so as to maintain or to improve the
market share towards the product. A good market share is a better indication of progress.
4. The pricing objectives may be to meet or prevent competition.
5. It also prevents price war amongst the competitors.
6. Product Line pricing to maximise long-term profits is another price objective.

14.2 Types of Pricing Decisions

The following are the key types of pricing decisions:
1. Perceived Value Pricing Method: In this method, prices are decided on the basis of
customer’s perceived value. They see the buyer’s perceptions of value, not the seller’s cost
as the key indicator of pricing. They use various promotional methods like advertising
and brand building for creating this perception.
2. Value Pricing Method: In this method, the marketer charges fairly low price for a high
quality offering. This method proposes that price represents a high value offer to
consumers.
3. Going Rate Pricing: In this method, the firm bases its price on the average price of the
product in the industry or prices charged by competitors.
4. Sealed Bid Pricing: In this method, the firms submit bids in sealed covers for the price of
the job or the service. This is based on firm’s expectation about the level at which the
competitor is likely to set up prices rather than on the cost structure of the firm.
5. Psychological Pricing: In this method, the marketer bases prices on the psychology of
consumers. Many consumers perceive price as an indicator of quality. While evaluating
products, buyers carry a reference price in their mind and evaluate the alternatives on the
basis of this reference price. Sellers often manipulate these reference points and decide
their pricing strategy.
6. Odd Pricing: In this method, the buyer charges an odd price to get noticed by the consumer.
A typical example of odd pricing is the pricing strategy followed by Bata. Bata prices are
always an odd number like 899.99 etc.
7. Geographical Pricing: This is a method in which the marketer decides pricing strategy
depending on location of the customer like domestic pricing, international pricing, third
world pricing, etc. Multinational firms follow such a pricing strategy as they operate in
different geographic locations.

8. Discriminatory Pricing: This is a method is which the marketer discriminates his pricing
on certain basis like type of customer, location and so on. It occurs when a company sells
product or service at two or more prices that do not reflect a proportional difference in the
costs. One can sell at different prices in different segments. Different prices for different
forms of the same product can sell the same product at two different levels depending on
the image differences.

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