What are the different price-setting methods? Briefly describe each of them
What will be an ideal response?
The six major price-setting methods are: markup pricing, target-return pricing, perceived-value pricing, value pricing, going-rate pricing, and auction-type pricing.
• Markup pricing - This is the most elementary pricing method wherein a standard markup is added to the product's cost.
• Target-return pricing - Here, the firm determines the price that yields its target rate of return on investment.
• Perceived-value pricing - Perceived value is made up of a host of inputs, such as the buyer's image of the product performance, the channel deliverables, the warranty quality, customer support, and softer attributes such as the supplier's reputation, trustworthiness, and esteem. Companies must deliver the value promised by their value proposition, and the customer must perceive this value.
• Value pricing - Companies win loyal customers by charging a fairly low price for a highly-quality offering. Value price is just not a matter of lowering the prices but also it is a matter of reengineering the company's operations to become a low-cost producer without sacrificing quality, to attract a large number of value conscious customers.
• Going-rate pricing - Here, the firm bases its price largely on competitors' prices.
• Auction-type pricing - There are three major types of auctions and their separate pricing procedures:
i. English auctions - These have one seller and many buyers. The highest bidder gets the item.
ii. Dutch auctions - This features one seller and many buyers, or one buyer and many sellers. In the first kind, an auctioneer announces a high price for a product and then slowly decreases the price until a bidder accepts. In the other, the buyer announces something he wants to buy, and potential sellers compete to offer the lowest price.
iii. Sealed-bid auction - This lets would-be suppliers submit only one bid. The suppliers have no knowledge about the other bids.
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