17 Different Kinds of Pricing with Examples

Different Kinds of Pricing

Different kinds of pricing followed in marketing are Odd Pricing, Psychological Pricing, Price based on the prevailing or ruling price, Prestige Pricing, Customary Pricing, FOB (Free on Board) Pricing, CIF (Cost, Insurance and Freight) Price, Dual Pricing, Administered Pricing, Monopoly Pricing, Price Lining, Expected Pricing, Sealed Tender Pricing, Negotiated Pricing, Mark-up Pricing, Skimming Pricing and Penetration Pricing.

1. Odd Pricing

When the price of a product is an odd number, such a pricing method is known as odd pricing. Example: Conventionally, Some Shoe Company fix the price of shoes and chappals by the method of odd pricing, e.g., Rs.399.95 Ps. The reason for fixing the price as an odd number is quite obvious. Rs.399.95 Ps sounds better than Rs.400. An impression that the price is less is being created.

2. Psychological Pricing

When the price of a product is a round number, such a method of pricing is known as psychological pricing. For example, a product may be priced Rs.10 or Rs.15. Such a method is preferred by those marketers who do not believe in the technique of odd pricing.

3. Price based on the prevailing or ruling price

Such a method is followed by those marketers who want to fall in line with their competitors. They keep the same price as decided already by their rivals. Example: Manufacturers of cement follow a uniform price policy (Oligopoly market).

4. Prestige Pricing

This method is followed by those who deal in luxury goods. Such marketers, generally, keep the price of goods high for they think that customers will judge quality by the price. Example: Those who sell cosmetic items, leather goods, electronic items, etc., follow prestige pricing.

5. Customary Prices

By custom or convention, certain products are sold almost at the same price by different marketers. Example: Milk, butter, coffee powder, soft drinks, etc.

6. FOB (Free on Board) Pricing

Such a pricing has relevance when goods are to be transported to the buyer’s place. In case of FOB origin, the transit charges will be born by the buyer himself and in the case if FOB destination, he need not pay the transit charges.

7. CIF (Cost, Insurance and Freight) Price

In the case of CIF price quotation, the price paid by the buyer (may be an importer) includes cost, insurance and freight charges.

8. Dual Pricing

It refers to the practice of some marketers who quote two different prices for the same product, one may be for bulk buyers and one for small quantity buyers.

9. Administered Pricing

The price determined by a marketer based mainly on personal considerations is known as administered pricing. Factors like cost, demand and competition are ignored.

10. Monopoly Pricing

The price fixed by a marketer who has no competition in the market is known as monopoly pricing.

11. Price Lining

In this case, the price, once determined, remains unchanged for a fairly longer period of time.

12. Expected Pricing

The price fixed for a product based on the expectations of the consumers is known as expected pricing.

13. Sealed Tender Pricing

In case of contracts involving heavy outlay, e.g., construction contracts, sealed tenders will be invited from interested parties. The work is then assigned to the one who has quoted the minimum price.

14. Negotiated Pricing

Manufacturers of industrial goods, who need components from suppliers, negotiate with the latter before finalizing the price. This becomes necessary in view of the high cost of the components.

15. Mark-up Pricing

It refers to the price arrived at by a retailer by adding a certain percentage (towards his margin of profit) to the manufacturer’s price. It is only at this price that he sells the goods to the consumers.

16. Skimming Pricing

It refers to the practice of setting a very high price for a product, when it is introduced into the market for the first time and to reduce the same gradually as competitors enter the market. This has been explained by William J. Stanton as ‘Skim-the-Cream-Pricing’.

Skimming pricing approach is followed when the marketer is not sure of the correct price for the product and decides to ascertain the same by trial and error. When a high price is set initially and the response of the buyers is good (because they are satisfied with the product quality), it may indicate that the marketer’s pricing strategy is correct. If the response of the buyers is not so good (they find the price too high) the marketer may reduce his price. Thus, a high initial price offers scope for price reduction when necessary. It has been given the name ‘skimming pricing’ because it helps to skim (take) the cream of the market that is not really sensitive to price and is mainly quality conscious.

17. Penetration Pricing

Setting a low initial price for the product is what is penetration pricing. It has been given such a name because it enables the product to penetrate (pierce or go into) the market to find a place. Such a pricing is resorted to when the market for the product is very sensitive to price and the product faces threat from competition always. In the case of penetration pricing, although, profits are sacrificed in the initial years, profits are expected to accrue in the long-run.