General pricing approaches - Pricing Decision, Marketing Management Video Lecture | Marketing Management - B Com

ah it was nick nelson and out here to
give you the description and application
of the different approaches to pricing
so let's get started there are three
questions you have to ask yourself when
it comes to price what is our target
profit how much is the customer willing
to pay and are we a price taker or price
setter for this product now since the
first two questions are pretty
self-explanatory we're going to focus on
the third since that tends to be where
you're going to set your range of prices
now to be a price taker or price center
you have to ask yourself two more
questions is this product unique and
what is the current competition for this
product now if your product is not
unique and has a lot of competition like
a bag of popcorn you are a price taker
and if your product is not unique right
if it is unique and has little or no
competition you are a price setter and
in this case you'd be selling something
such as an original painting and all
this can be summed up in this figure and
the first side we're going to explain a
little bit more is the price taker side
for a price taker as I stated earlier
the product most likely lacks uniqueness
and has a lot of competition now since
and because of that there's already a
set range of acceptable prices or in
this case a market price and now the
pricing approach most suited for a price
taker is called target costing target
costing is where you're more focused on
the cost of good rather than the price
since the price again is already set for
you and your formula for this is where
you take your market price you subtract
your desired profit to those give you
your target total cost where you want to
produce your product at now if the
target total cost comes out higher than
your current cost of producing this
product you're going to have to make
reductions in either your fixed or
variable costs to counteract that or
else you cannot sell this products is
you won't be making any money or you're
gonna have to help your
and thus you probably will not be
selling it now on the flip side as a
price setter as I stated earlier your
product is more likely the most likely
unique and doesn't have much for
competition there's not a set range of
prices and now we got to focus on the
first to pricing questions which were
what's our target product or target
profit I'm sorry and how much our
customers willing to pay and the
cost-plus pricing approach is going to
be best suited for a price center now
cost-plus pricing is essentially the
opposite of target costing or now you're
focused on the price rather than the
cost of the good and in this case you're
taking your total current cost of
producing this good and now you're
adding your desired profit to the skiv
you your price now in these situations
it can be a little difficult because you
do have a lot of control over the price
and manufacturers typically
overcompensate for their desired profits
and does they have a very high price now
you need to keep in mind this second
pricing question which is how much of
the customer is willing to pay they only
have so much in their wallet and setting
it price too high can be a big deterrent
overall you gotta ask yourself the first
big questions what's your target profit
how much are the customers willing to
pay and are you price taker or in price
center and after you determine that you
now have a given pricing approach for
your situation and this can be again
summed up in this figure no overall if
all this is still a little bit fuzzy for
you and you're having troubles kind of
connecting the pressing approach to
being a press center or price taker I
have a couple little tips
overall look at the names of the
approach target costing you're trying to
target a cost for this since the price
is already set so thus because the price
is already set for you you are a price
taker and cost-plus pricing again pretty
self-explanatory you're taking your cost
plus your desired profit and thus since
you already have your cost plus your
price you are now a price setter
hopefully all this is cleared up some
confusion for you guys and you guys have
a good one out
ah
Oh