Pricing Decisions in Marketing and Methods

                                     Pricing decisions.
Organizations producing goods and services need to set the price for their product. Setting the price for an organization's product is one of the most important decisions a manager faces. It is one of the most crucial and difficult decisions a firm's manager has to make. Pricing is a profit planning exercise. Cost is one of the major considerations in price determination of the product. It is one of the three major factors which influence ricing decision. The two other factors are customers and competitors

Factors Affecting Pricing Decision

• Internal Factors - When setting price, marketers must take into consideration several factors which are the result of company decisions and actions. To a large extent these factors are controllable by the company and, if necessary, can be altered. However, while the organization may have control over these factors making a quick change is not always realistic. For instance, product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how much can be produced within a certain period of time). The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the product’s price. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time.
• External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market.

The four basic methods of making pricing decisions 
 cost-plus pricing, 
demand pricing,
 markup pricing and
competitive pricing.

Cost plus pricing 
Cost plus pricing is a cost-based method for setting the prices of goods and services. Under this approach, you add together the direct material cost, direct labor cost, and overhead costs for a product, and add to it a markup percentage (to create a profit margin) in order to derive the price of the product. 
Cost-plus pricing = break-even price * profit margin goal  

Demand-based pricing 
Demand-based pricing, , also known as customer-based pricing, is any pricing method that uses consumer demand - based on perceived value - as the central element 

Markup pricing 


Markup is the difference between the cost of a good or service and its selling price. A markup is added onto the total cost incurred by the producer of a good or service in order to create a profit. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product.  

Competitive Pricing' 
Setting the price of a product or service based on what the competition is charging. Competitive pricing is used more often by businesses selling similar products, since services can vary from business to business while the attributes of a product remain similar.