Special Pricing Approaches Used in Business

A variety of approaches are employed by businessmen in setting prices. These approaches are not mutually exclusive but sometimes they complement or supplement one another. Some of them are:

  1. Intuitive Pricing: It is a psychological method of pricing in which prices are based on the ‘feel of the market’. The system is more subjective rather than objective in nature. Initially the price is estimated on the basis of cost plus method with flexible mark-up pricing. This method is fairly common.
  2. Experimental Pricing: It is a trial and error method of pricing. This method is widely used in pricing of new products especially at retail level.
  3. Initiative Pricing: In this method a firm decides to follow a price fixing policy of a price leader.
  4. Backward Cost Pricing: Certain industries target price as the starting point for strategic calculations. The selling price is determined first and by working backwards the firm arrives at a product design.
  5. Odd Number and Critical Number Pricing: Many firms believe that consumers have strong price sensitivity at certain critical points. This is particularly noticeable in the retail trade. It is very commonly believed that odd numbers are more attractive to the buyers than the even numbers. The problem of the management is to determine that number which has the greatest appeal.
  6. Double Pricing: Double pricing is a technique in which two prices are shown on the price tag or on the pack of the article. The original price is usually crossed out and substituted by a new price at a lower range.
  7. Prestige Pricing: Buyers are often price-conscious. There is some sort of price illusion. The buyers often feel that higher the price, the more prestigious is the product and therefore greater the demand for it. Some type of social scaling exerts a powerful influence on the pricing behavior.
  8. Multiple Pricing / Collective Pricing: Retail prices are usually expressed in terms of one unit. Experience often reveals that sales can be increased if more units are offered for a price. This technique of pricing is known as Multiple Pricing. The Multiple Pricing must offer small saving to the consumer.
  9. Peak-Load Pricing: Pricing done on the basis of the peak period demand and off peak period demand is called Peak-Load Pricing. Higher prices are charged in the peak period and lower prices are charged in the off-peak period.

From the above discussion we observe that various pricing methods and pricing approaches prevail in domestic and export market. The choice of pricing method eventually depends on the objectives of the firm.

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