Methods of marketing pricing. Pricing Methods in Marketing

Antonina Nikolaevna Gavrilova Candidate of Economic Sciences, Associate Professor; Department of Finance and Credit, Faculty of Economics, Voronezh State University
© Elitarium — Distance Education Center

One of the most significant factors determining the efficiency of the enterprise is the pricing policy in the commodity markets. Prices provide the enterprise with the planned profit, the competitiveness of products, and the demand for it. Through prices, the final commercial goals are realized, the efficiency of all parts of the production and marketing structure of the enterprise is determined.

If a certain level of profitability is not included in the price of products, then at each subsequent stage of the capital circulation, the enterprise will have less and less in cash, which will ultimately affect both the volume of production and the financial condition of the enterprise. At the same time, in a competitive environment, it is sometimes permissible to use unprofitable prices to conquer new sales markets, oust competing firms and attract new consumers. An enterprise, in order to enter new markets, sometimes deliberately reduces its sales revenue in order to subsequently compensate for losses by reorienting demand for its products.

If an enterprise can influence the cost of production only to a very small extent, since the flexibility of an enterprise is limited, as a rule, by the spread of prices for raw materials, materials, semi-finished products and labor, as well as internal production reserves to reduce the material intensity of products, then the selling price for its products is can be set to virtually unlimited limits. However, the possibility of establishing an unlimited price does not entail the obligation of the consumer to purchase the company's products at the price set by him. Thus, the pricing strategy of the enterprise is the essence of the solution to the dilemma between the high selling price and large sales volumes. Let's try to consider various options actions of the enterprise to establish prices for products sold.

Pricing and price management strategies

Price- the only element of traditional marketing that provides the enterprise real income. The market price is not an independent variable, its value depends on the value of other elements of marketing, as well as the level of competition in the market and the general state of the economy. Usually, other elements of marketing also change (for example, by increasing product differentiation in order to maximize the price, or at least the difference between price and cost).

The main objective of the pricing strategy in a market economy is to maximize profits with the planned sales volume. The pricing strategy should ensure long-term satisfaction of consumer needs through the optimal combination of the internal development strategy of the enterprise and parameters external environment as part of a long-term marketing strategy.

Therefore, when developing a pricing strategy, each company must determine for itself its main goals, such as maximizing revenue, price, sales volumes or competitiveness while ensuring a certain profitability.

The pricing strategy structure consists of a pricing strategy and a pricing management strategy.

Pricing strategy allows you to determine from the standpoint of marketing the price level and marginal prices for individual groups of products. Pricing should always be carried out taking into account the range and quality of products, their usefulness, the importance and purchasing power of consumers and the prices of competitors. In some cases, the prices of substitute products should also be taken into account.

Price management strategy there is a set of measures to maintain conditional prices with their actual regulation in accordance with the diversity and characteristics of demand, competition in the market.

The main steps in developing a pricing strategy:

1. Price analysis(includes getting answers to the following questions):

whether price norms are defined;
whether the characteristic of the consumer is taken into account;
whether price differentiation is justified;
whether the possible trend of price changes is taken into account;
Are pricing norms sufficiently linked to other marketing tools?
whether they allow them to compete;
whether the flexibility of demand is taken into account when setting the price;
whether the reaction of competitors to the price of this type of product is taken into account;
whether the price corresponds to the image of the product;
whether the stage of the product life cycle is taken into account when setting the price;
Are the discount rates correct?
whether price differentiation is envisaged (by regions, categories of consumers, seasons, etc.);
determination of the objectives of the pricing strategy.

2. Setting goals and directions for pricing:

pricing objectives - profit, revenue, price maintenance, anti-competition;
pricing directions - by price level, price regulation, discount system.

3. Final decision on pricing strategy.

In each type of market, taking into account the tasks facing the enterprise and the emerging market conditions, the following tasks can be solved by pricing:

Ensuring the planned rate of return guaranteeing competitiveness and fast sales of the company's products. Here you need to be quite careful, as this can lead to the fact that the price ceases to play a positive role in marketing.
Creating a cash reserve: if the company has problems with the sale of products, the influx of money may be more important than profit. This situation is typical today for many enterprises in relation to "live" money. Sometimes the value of existing inventory is such that it is better to sell it at or below cost rather than keep it in stock and wait for market changes. In some cases, holding low prices once a firm market position has been established, new competitors can be deterred (prices are not high enough to cover the cost of setting up new production for newcomers).
Ensuring a given sales volume when for the sake of maintaining a long-term position in the market and increasing sales volumes, you can give up a share of profits. A situation is considered positive when a product simultaneously has qualitative advantages over competitors' products. In this case, after conquering a certain market share, it is possible to slightly increase prices over time. An extreme form of such a policy is “exclusive” pricing, when the price of a product is set so low that it leads to the exit of some competitors from the market.
Gaining prestige: most effective method in cases where the consumer finds it difficult to determine the difference in the quality of competitors' products. The prestigious price should accordingly belong to the product, which is appropriately advertised and promoted on the market.
Full utilization of production capacity due to "off-peak" pricing. It is effective where there are high "settled" and low "changing" prices, where demand changes with a certain frequency (for example, natural resources, transport, etc.). When demand is low, instead of leaving production capacity unused without recovering the fixed part of the cost, it is necessary to stimulate demand by valuing the product more than the variable component of demand.

The problem of pricing occupies a key place in the system market relations. After market reforms in Russia, enterprises mainly use free (market) prices, the value of which is determined by supply and demand. They may change for the same product depending on sales volume or payment terms. As a rule, the greater the volume of sales per consumer, the lower the selling price per unit.

Prices can be wholesale (holiday) and retail. Consider their composition and structure:

Enterprise wholesale price includes full cost products and company profits. At wholesale prices of the enterprise, products are sold to other enterprises or trade and marketing organizations.
wholesale industry price includes enterprise wholesale price, value added tax and excises. At the wholesale price of the industry, products are sold outside the industry. If products are sold through sales organizations and wholesale trade depots, then a mark-up is included in the wholesale price of the industry to cover the costs and generate profits for these organizations.
Retail price includes the wholesale price of the industry and trade margin(discount). If wholesale prices are used mainly in on-farm turnover, then at retail prices, goods are sold to the final consumer - the population.

The price level is the most important factor, affecting the proceeds from sales of products and, consequently, the amount of profit.

Also of great importance terms of sale. The sooner the payment is due in accordance with the concluded agreements, the faster the company is able to involve funds in the economic turnover and receive additional benefits and reduce the likelihood of defaults. Therefore, the sale at reduced prices on the condition of prepayment or payment upon shipment for the enterprise often looks preferable than, for example, the shipment of products at higher prices, but on a deferred payment basis.

Pricing Methods

The following stages of the pricing process at the enterprise are distinguished:

determination of the base price, i.e. prices without discounts, markups, transport, insurance, service components;
determination of the price taking into account the above components, discounts, markups.

The following basic methods for calculating the base price are used, which can be used in isolation or in various combinations with each other:

1. Total cost method, or Cost plus method (Full Cost Pricing, Target Pricing, Cost Plus Pricing). To the full amount of costs (fixed and variable) add a certain amount corresponding to the rate of return. If the production cost is taken as the basis, then the allowance should cover the costs of sales and ensure profit. In any case, the surcharge includes indirect taxes and customs duties passed on to the buyer. It is used in enterprises with a well-defined product differentiation to calculate prices for traditional products, as well as to set prices for completely new products that do not have price precedents. This method is most effective when calculating prices for goods of reduced competitiveness.

Example. A household goods business wishes to set a price for a new product. The projected annual production is 10,000 units. Presumably direct costs of raw materials and materials per unit of product - 1000 rubles. Direct labor costs per unit of product - 400 rubles. The company is planning fixed costs 2000 thousand rubles per year and hopes to receive 4,000 thousand rubles. arrived. Calculate the price using the marginal cost method.

The planned sales revenue after reimbursement of variable costs will be: 2000 + 4000 = 6000 thousand rubles.

The desired result from sales after reimbursement of variable costs per unit of product: 6,000,000 / 10,000 = 600 rubles.

Total variable costs per unit of product: 400 + 1000 = 1400 rubles.

Price (variable costs per unit of product + desired result from sales after reimbursement of variable costs per unit of product): 600 + 1400 = 2000 rubles.

2. Manufacturing cost method (Conversion Cost Pricing). The total cost of purchased raw materials, materials, semi-finished products is increased by a percentage corresponding to the enterprise's own contribution to increasing the value of the goods. The method is not applicable for long-term pricing decisions; does not replace, but complements the full cost method. It is applied in specific conditions and cases of decision-making:

about increasing the mass of profits by increasing the volume of production;
refusal or continuation of competition;
about changing the assortment policy in determining the most and least profitable products;
for one-time (individual, non-mass) orders.

3. Marginal cost method (Direct Costing System) involves an increase in variable costs per unit of output by a percentage that covers costs and provides a sufficient rate of return. Provides broader pricing options: full coverage of fixed costs and profit maximization.

4. Return on investment method (Return on Investment Pricing) is based on the fact that the project must provide a profitability not lower than the cost of borrowed funds. The amount of interest for the loan is added to the total cost per unit of production. The only method that takes into account the payment of financial resources necessary for the production and sale of goods. Suitable for enterprises with a wide range of products, each of which has its own variable costs. It is suitable for traditionally produced goods with an established market price, as well as for new products. It is used successfully when making decisions on the volume of production of a new product for the enterprise.

Example. The company sets the price for a new product. The projected annual production volume is 40,000 units, the estimated variable costs per unit of product are 35 rubles. total amount fixed costs - 700,000 rubles. The project will require additional financing (loan) in the amount of 1,000,000 rubles. at 17% per annum. Calculate the price using the ROI method.

Variable costs per unit 35 rubles. Fixed costs per unit of product: 700,000 / 40,000 = 17.5 rubles.

Total costs per unit of product: 35 + 17.5 = 52.5 rubles.

The desired profit will be: (1,000,000 × 0.17) / 40,000 = 4.25 rubles / unit. (not less).

The minimum allowable price of the product: 35 + 17.5 + 4.25 = 56.75 rubles.

5. Methods of marketing evaluations (Pricing based on Market Considerations). The company tries to find out the price at which the buyer definitely takes the goods. Prices are focused on improving the competitiveness of the goods, and not on meeting the needs of the enterprise in financial resources to cover costs.

Example. The elasticity of demand from prices for the company's products is 1.75.

1. Determine the consequences of a price reduction by 1 ruble, if before this reduction the sales volume was 10,000 products at a price of 17.5 rubles, and total costs were equal to 100,000 rubles. (including permanent - 20 thousand rubles) for the entire volume of production.

Sales revenue before the price change: 17.5 × 10,000 = 175,000 rubles.

Profit before price change: 175,000 - 100,000 = 75,000 rubles.

Sales volume after price reduction: 10,000 × (1.75 × 1/17.5) + 10,000 = 11,000 units

Sales revenue after price reduction: 16.5 × 11,000 = 181,500 rubles.

The total cost of production and sale of products after a price reduction:

fixed costs: 20,000 rubles;

variable costs: (100,000 - 20,000) / 10,000) × 11,000 \u003d 88,000 rubles.

total costs: 20,000 + 88,000 = 108,000 rubles.

Profit after price reduction: 181500 - 108000 = 73500 rubles.

Thus, the price reduction led to a loss of profit in the amount of 1,500 rubles: 75,000 - 73,500 = 1,500 rubles.

2. Determine whether it is profitable for the enterprise to reduce the price by 1 rub./unit, if the level fixed costs accounted for 50% of the total costs.

Costs after price reduction at a new level of fixed costs in the cost structure:

fixed costs: 100,000 × 0.50 = 50,000 rubles;

variable costs: (100,000 - 50,000) / 10,000) × 11,000 \u003d 55,000 rubles.

total costs: 50,000 + 55,000 = 105,000 rubles.

Profit after price reduction: 181500 - 105000 = 76500 rubles.

Thus, lowering the price is beneficial, since it leads to additional profit in the amount of 1,500 rubles: 76,500 - 75,000 = 1,500 rubles.

Marketing Pricing Methods

Topic 6. Price marketing

It is extremely important to digitize the strategic price level (high-low) with which the product enters the market. The choice of the method for calculating the initial level of the selling price is carried out taking into account the listed factors and the traditions of industry pricing. Practical pricing is not based on optimization methods, but on a gradual search for a more or less acceptable price using incomplete information. The seller must determine and justify the price that he wants and can offer the market. This price must fit into the interval beyond which production becomes unprofitable. The basic principles of pricing follow from the "magic triangle": the price must cover costs and bring sufficient profit, must be accepted by the mass of buyers, withstand the strategies of competitors. It is difficult to lay down these conditions in one price, in connection with this, when initially determining the price, it is extremely important to choose a priority direction: costly, purchasing or competitive. In accordance with this, there are methods focused on costs, demand, competitors, as well as methods derived from them (they can also be called synthetic, ᴛ.ᴇ. combining different directions).

1. Costly pricing methods:

o calculation based on full costs

o costing based on variable costs

o Targeted profit pricing

o ROI method

2. Demand driven methods:

o price determination based on a survey of a representative sample of consumers

o auction method

o experiment method (trial sales)

o parametric method

3. Methods focused on competitors:

o Competitive price monitoring method

o competition method

4. Production pricing methods (mix):

o aggregate method

o reverse costing

o Calculated alignment

Cost methods: the price is calculated as the sum of costs and markups on the cost price (progressive costing). As a rule, a company's product portfolio consists of several elements, which gives rise to the problem of allocating fixed costs between products. There are various schemes for setting the selling price for each product.

1) Calculation based on full costs (Full Cost Priсing, Target Pricing): the amount corresponding to the rate of return (H) is added to the total cost. The surcharge includes indirect taxes and customs duties.

P = Total cost + N * Total cost

The method has calculation options: fixed costs are distributed in proportion to the identified variable costs of each product; production and sales costs (Cost Plus Priсing), processing costs (Conversion Cost Pricing), etc. In the first case, the formula is used:

The method does not take into account the different position of products on the market, ignores the elasticity of demand, and reduces incentives to minimize costs. Expensive products become even more expensive, and a decrease in sales leads to an increase in prices and further worsens the competitiveness of the product. Some of the shortcomings are eliminated by calculating the cost for an average output volume (not the most efficient), taking into account costs by type and place of occurrence and assigning them to a product group, etc.

2) Calculation based on variable costs - fixed costs are divided according to the possibility of attribution to the product (the price covers the costs of producing the product, and the difference between them is a contribution to covering the remaining costs:

P = (variable costs + coverage) / output.

The amount of coverage (marginal income, value added) is determined by subtracting the amount of direct variable costs from the proceeds, part of the amount received is used to cover fixed costs, the remainder is profit.

3) Pricing based on ensuring target profit determines the required price level for a given amount of profit, taking into account the possible volume of production, the relationship of costs and revenue. Different price options are considered, their impact on the sales volume required to overcome the break-even level and obtain the target profit (testing prices for profitability).

P = (total costs + planned profit) / output

Such calculations are carried out for various output volumes, and the best ratio is selected. Main disadvantage: the volume of production depends on the price, it is incorrect to use it for its calculation.

4) Method of return on investment (Return on Investment Pricing).

P = total costs / output + the amount of interest on the loan

The method is based on the fact that the project must provide a profitability not lower than the cost of borrowed funds. This method is used by enterprises with a wide range of products, each of which has its own variable costs.

The cost method is used to determine the lower threshold of a possible price, which is extremely important for making a decision to stop production, to accept additional orders. For example, for a part-time firm, orders at a price that covers at least some part of fixed costs are acceptable.

Demand-oriented methods: pricing takes into account the market situation (Pricing based on Market Consideration) and consumer preferences and is based on consumer surveys, expert assessments, and experiment.

1) Consumer survey method: a representative sample of consumers is carried out for a survey in order to identify the idea of \u200b\u200bthe “correct” price and the ceiling of the possible price, the reaction to price changes, the possibility of their differentiation. This process can be simulated. Suppose the dependencies identified during the survey have the form:

p=b-bx , z=c+cx,

where: x - demand, p - price, z - costs,

then D=px=bx-bx (D - income).

A monopolist will maximize revenue when marginal revenue equals marginal cost:

=> x = (b-c) / 2b

By substituting the demand values into the equations, we obtain the value of the optimal price and the corresponding costs, income, and profit.

Based on the identified dependencies, another method of calculating the value of the optimal price is also used: Ropt = direct costs * E / (1+E), where E / (1 + E) is the markup on direct costs, Ropt is maximum when |E| to 1, which corresponds to the presence of a strong brand preference.

2) Auction method

It is used when setting prices for unique, prestigious goods, it allows you to concentrate demand in one place, to include an element of excitement in the price, the costs of the auction and the profits of the organizers.

Method options are determined by the type of auction (public auction):

a. “Upward” pricing method (goods are sold at the highest price offered by buyers);

b. the “downward” pricing method (“Dutch system” or waling auctions: the initial offer price is the highest);

c. the “sealed envelope” method, while there is no possibility of comparison with the requests of other buyers.

3) Method of experiment (trial sales)

The price is set by sorting through different price options based on observing the reaction of consumers, for example, to small changes in set prices and optimizing the revenue-sales combination. The application of the method is preceded by the determination of acceptable price limits.

4) The parametric method is based on a comparison of expert scores given to the main parameters of a new (A) and basic (B) product (or several competing products). The new price should be in the same ratio with the price of the base product as the quality.

Known: expert opinions basic properties surveyed goods (for example, on a 10-point scale) and an assessment of the importance of these properties (for convenience, 1.0 is distributed among all attributes). For each product, a total score, ᴛ.ᴇ, is determined. the sum of the scores weighted by their importance (feature scores are multiplied by the importance scores and summed).

b. the price of one point * the total score of the product A = the desired price

Competitor-focused methods: applied in an acute competitive environment and in case pricing based on other methods has failed: the price is changed to the price of competitors or the industry average. Prices are generally focused on improving the competitiveness of the goods.

1) The method of monitoring competitive prices - the price is set and then kept at the price level of the main competitor.

2) Competition method. The competition (forced price competition of sellers) is characterized by the concentration of supply, the visibility of the market. Conditions: homogeneity of the product ͵ the possibility of its clear description. The most common variant of this method is the tender method: buyers anonymously take part in a bid competition (tender), the one whose price provides the seller with the greatest profit wins. It is used, for example, when placing government orders.

In closed bidding (the "sealed envelope" method), the contestants do not know about the offers of competitors, in contractual bidding, the remaining two participants who offered the lowest price agree among themselves.

The goal for the bidder is to determine the maximum own price, which is less than the prices of competitors, which boils down to estimating the probability of receiving an order when different prices. In practice, they are satisfied with the assessment of the probability of setting a particular price by competitors based on comparison with previous tenders or intuitively.

Derivative methods (mix, synthetic)

1) The aggregate method determines the price of a product consisting of individual parts(for example, a chandelier) or finished products (furniture sets), as the sum of the prices of these components. If several products have a common unit (for example, a mixer - coffee grinder), then the price can be determined as the sum of the price of this block and the allowances for the presence of individual elements.

2) Reverse costing: the selling price minus the discount (the profit required by the firm) equals the costs. Serves to control the actual or planned price from the standpoint of cost affordability.

3) Calculation equalization is applied if the price covering costs is not accepted by the market or, conversely, the demand price does not cover costs. The value of each product in the program is not the same, in connection with this high income from some often compensate for the poor results of others. The forced reduction in prices for some products of the company's product portfolio will not allow achieving the desired profit with the planned output volume. To this end, the company raises the price of a "traveling" product.

For goods not accepted by the market:

a. Planned sales * Actual price = Realized revenue

b. Realized revenue - Planned revenue = Undercover

For "hot" goods:

a. Planned revenue + Undercoverage for "non-trading" goods = Required revenue

b. Required revenue: Planned output = Selling price

Variants of this method:

assortment alignment is used within the framework of the strategy - "differentiation of prices of interrelated goods";

· equalization in time, according to consumer benefits is used within the framework of discriminatory strategies.

Each company, once again determining the market value of a new product, seeks to maximize its income. How to do it correctly, we will describe in detail in our article. After reading given material, you will be introduced to the six basic pricing methods. Each pricing approach has its own characteristics, advantages and disadvantages; each described method of calculating the optimal price is used in practice; but which model is right for you depends on the principles of process management in your company.

6 Ways to Pricing

In marketing, there are 6 main pricing methods, of which two pricing methods are based on the cost of the product, and four other pricing models are based on market environment factors.

Fig.1 Classification of pricing methods in marketing

Market methods of pricing include: the method of perceived value, the method of price barriers and the method of current prices. Costly pricing methods include: the method of the marginality of the product, on the basis of a markup on production costs and on the basis of accounting for full costs.

Using costly pricing methods, the company takes the current cost of the product as a starting point and, depending on its value, sets the selling price. Such methods are suitable for companies that are not able to influence the cost of goods: for example, for trading companies or for companies with an established product cycle in which costs cannot be reduced.

Market methods, on the contrary, take as a basis the influence of market factors on the cost of a product: consumer perception, established behavior patterns, the demand curve and the competitive environment of the market. The starting point for calculating the value of goods by market methods is perfect price product that maximizes sales and profits. And already, knowing the target cost of the goods, the company strives to reduce costs and get the desired level of cost.

Let's take a closer look at each pricing method using illustrative examples with ready-made formulas calculation and methodical recommendations.

Perceived value method

The pricing method is based on marketing research of consumer perception of the price of the product. The method is based on the assumption that the consumer will consider the cost of the goods acceptable if the price coincides with his idea of it. In other words:

If the price of the product is too low (according to the consumer), the consumer will refuse to buy, as he will doubt the quality of the product
If the price of the product is too high (according to the consumer), the consumer will refuse to buy, as he will not agree to pay
If the price of the product corresponds to the consumer's ideas about the cost, the probability of purchase will be maximum.

At first glance, everything looks pretty simple: to calculate the price, you just need to show the target consumer the finished product and ask him about the estimated cost of the product on display. But in practice, in order to achieve the purity of such an experiment and obtain undistorted data, a number of conditions must be observed.

Method Implementation

To set prices according to the perceived value method, it is necessary to conduct a quantitative study of the finished product (with final characteristics, packaging, dimensions, etc.) and create the situation of making a real purchase as accurately as possible. The research process looks like this:

The consumer is shown the finished product of the company surrounded by competitors without a price.
Competitive products, on the contrary, have a price tag with real price.
The consumer is asked the question: how much, in his opinion, should the company's product cost?
The named price will be the perceived value of the product.

It is very important that the consumer sees the prices of competitive products, as they allow him to form a reference point for the price of the new product of the company participating in the study.

Calculation formula

The formula for calculating the cost of a product using the perceived value pricing method is as follows: Product Price = PV*k, where

Perceived Value (PV) = the perceived value of the product
k is the perceived value adjustment factor (from 0.9 to 1)

Why is a ratio needed? When calculating the cost of a product using the perceived value method, it is recommended to keep a positive difference between the perceived value of the product and the real price, in other words, set the price of the product so that it is slightly lower (about 5-10%) from the perceived value. In this case, the purchase of goods will seem to the buyer winning.

Pricing based on price barriers

The method is based on the assumption that the consumer forms an idea of "the acceptable price of goods" based on price clusters. Each price cluster is a corridor of prices for goods "from and to", and, according to the consumer, has certain characteristics. The idea of price clusters (or price barriers) is formed in the mind target audience as a result of the accumulation of experience about shopping in the market.

The formation of price clusters is caused by the consumer's need to divide countless goods into "cheap", "regular", "expensive" and "premium", which saves time choosing the right product. There are no universal price clusters, they are individual for each market and can be determined in the course of quantitative consumer research.

An example of price clusters:

up to 30 rubles: economy segment goods with basic characteristics, low quality
from 30-50 rubles: mass-market goods, unknown brands, good quality, with basic characteristics + some improvements
from 50-100 rubles: goods High Quality, well-known brands, imported, with maximum performance
over 100 rubles: premium, fashion, status, well-known brands.

Method Implementation

To calculate prices using the described pricing method, the first step is to conduct a quantitative study of consumers in terms of formed price clusters in the minds of the audience. As part of the study, identify the image characteristics of each cluster and assess which price segment the developed product falls into with its final characteristics and design. Then evaluate the probability of purchasing the developed product in each price cluster and, guided by the results of the research, as well as knowledge of competitors' prices and the target level of profitability, set the price for the new product.

Usually this species pricing is used in conjunction with other methods of setting prices and acts as a corrector.

Pricing in relation to competitors

A pricing method in which a company sets a price based on the cost of competitive products. In other words, the company establishes the principles of price positioning relative to its competitors and follows them when calculating the price of the product. The cost of the product in this case is secondary and depends on the target price of the product. The principles of price positioning can be the following:

The price of the product is x% higher than that of competitor A; lower by x% than competitor B;
The price of the product is always x rubles lower than that of competitor C;

Pricing based on the current price level

This market pricing method is used to set prices in markets for homogeneous goods. In such markets, the differences in the product are minimal or the consumer buys the product only for its basic characteristics and is not ready to overpay for additional features or conditions. Accordingly, the consumer chooses the product with the lowest cost. (For example, aluminum or steel markets, matches, toothpicks, etc.)

Price setting according to the method of the current price level is that the price prevailing in the market is assigned for the product. If the spread between prices in the market is not large, the arithmetic mean is taken.

Marginal Pricing

We turn to costly pricing methods. The first method is inextricably linked with the concept of o. It consists in setting a price level that will cover the cost of producing a product. Thus, the starting point for determining the price is the target profit from the sale of goods.

An example of formulating a profit target for calculating the price of a product: the total profit from the sale of a new product must be n% higher than or equal to the company's expenses.

Method Implementation

To calculate the price in the described way, it is necessary to determine 3 indicators: variable costs for the production of 1 unit of goods; the target sales volume of the product on which the company plans to enter; and the company's fixed costs in producing a set sales volume.

When all the initial data are determined, you can calculate the minimum selling price of the product (equal to the break-even point of sales). The minimum price obtained in the course of calculations is the lower threshold for the cost of the product, below which all sales of the product will incur losses. After receiving such a price, a competitiveness analysis of such a value should be carried out: Several methods are possible:

compare the floor price with the perceived price of the product
compare the lowest price with competitors' products
estimate the market volume of demand at the minimum price

As a result of the analysis, it will become clear whether the company can sell the product at this minimum price. There are 3 options for the development of events:

The minimum price is the limit of competitiveness, any price above the minimum leads to a refusal to purchase. In this case, the selling price = the minimum price.
The product will be in demand at a price exceeding the minimum cost. In this case, the selling price will be higher than the minimum price.
The product will be in demand only at a price below the minimum price. In this case, the company must look for ways to reduce the cost of goods.

Method Implementation Example

Let's say we have the following initial product information:

Variable cost of 1 unit of production = 25 rubles
Monthly business costs = 100,000 rubles
Target sales volume at competitive prices = 10,000 pcs

Based on the available information, we can determine the minimum price level for the product, which will pay off all the costs of the company:

We calculate the total cost of the company in the production of goods: fixed costs + variable costs \u003d 100,000 + 25 * 10,000 \u003d 350,000 rubles
The minimum profit per unit of production to cover business costs should be equal to: monthly costs / target sales in units = 350,000 / 10,000 = 35 rubles. Thus, the price of 35 rubles will allow the business to break even.

The next step is to evaluate the competitiveness of the resulting minimum cost of goods. As a result of a study to assess the perceived value of a product, we found that the consumer is ready to buy a product for 55 rubles. Based on the information received, we can safely set the cost of the product at 49 rubles (10% below the perceived value).

Pricing based on markup on production costs

The method is to set a fixed percentage of profit that you plan to earn from the sale of 1 unit of goods. In other words, according to this method, the selling price of a product or service should provide a fixed level of profitability, with the existing level of variable costs.

The rate of return of the goods is determined based on the following parameters:

Factors affecting the profitability of the product

The economic literature describes various pricing methods, the list of which is constantly expanding, but, despite their modification, many of them are based on well-known methods and use basic indicators. Therefore, the grouping of all pricing methods allows us to distinguish three approaches to pricing: costly, consumer-oriented and competitor-oriented.

Costly pricing methods prices are oriented primarily to the manufacturer, since they are based on production costs (cost). A common disadvantage of all costly methods is that prices are set without regard to market conditions. The main criterion for setting the price, consumer oriented, is the integral utility of the product, i.e. complex it useful properties. It is assumed that this utility induces the consumer to purchase the product at set price. When demand is high, the price tends to go up, and when demand is low, it goes down. On the competitive market the manufacturer is guided by the prevailing price level. He can set a higher price compared to competitors if he proves the superiority of his product.

In each group, varieties of pricing methods are distinguished depending on the method of accounting and distribution of costs, economic value, consumer demand and competitive advantage. Among the costly methods, the most widely used full cost method, direct cost method, break-even analysis method. The first method involves summing up variable and fixed costs, as well as profits and dividing the result (sales proceeds) by the planned quantity of output. The essence of the second method is to determine entry level manufacturer's wholesale price based on variable costs, the fixed costs of the organization are reimbursed by the difference between the income from sales and the amount of variable costs, which is called marginal profit. At the heart of the break-even analysis is the search for the most favorable ratios between variable costs per unit of product, fixed costs, price and production volume. Given the parameters of costs and prices, a break-even point is determined for the production of such a volume of products, the implementation of which achieves a zero result, thus exploring the possibility of changing the price level.

In consumer-oriented pricing methods, one can single out a method for calculating the economic value of a product, a method for maximizing sales, taking into account the elasticity of demand.

When applied method for calculating the economic value of a product an indicator of the attractiveness of the purchase is used, which is determined by the ratio of utility (basic and added) and the consumption price, which includes the price of the goods upon purchase and the costs of its operation. When justifying a change in the price of a unit of production (increase or decrease) by the method of maximizing sales, taking into account the elasticity of demand, the following factors are taken into account that affect the profit of the organization: a possible change in production volumes, the price elasticity of demand, the ratio of variable and fixed costs in the cost of production. Chain elasticity of demand shows by how many percent the demand for a good changes if its price changes by one percent. With elastic demand, when the elasticity coefficient is greater than one, a price reduction is used as a sales promotion lever, with inelastic demand, if this indicator is less than one, an increase is used.

In a large group of methods focused on competitors, marketers often use the following method. market prices, the market leader price following method and the prestigious price method. When forming prices in the markets of homogeneous goods (grain, sugar) at the level of the average market, the seller uses method of following market prices. If the market is dominated by several firms, among which there is a leader, then organizations that seek to maintain their positions are guided by the prices of a company with a large market share. Setting prices for goods sold using trademark, at a high level compared to the products of competing firms, are classified as prestigious pricing.

The pricing methodology is closely related to the organization's chosen pricing strategy and tactics for its implementation.

Market conditions force entrepreneurs to pay more attention to marketing theories. Their application in practice allows the company to be competitive and build the right development strategy.

Basic strategies and methods of pricing in marketing: overview, description and features

One of the priority goals of marketing is to study and find out the needs of the clientele. The data obtained will help to develop the product that suits the client the most and ensures the profitability of the business.

Another priority is product orientation. Studying the market, competitors and their role in solving customer needs helps to improve the properties of the product and win in the fight for the wallets, minds and hearts of customers.

The general economic approach, in which the price of a product is determined based on the cost and expected profit, may not be effective in all cases. In addition, the use of only this approach is a failure if there are other similar proposals on the market. Under such conditions, it becomes necessary to consider a separate branch of marketing - pricing methods in marketing.

What methods exist?

In general, 6 methods are distinguished, 2 of which are focused on accounting for the costs of production of goods and the remaining 4 - taking into account market factors.

Which one is advisable to use if the product is new? When establishing the cost of a new product, the principles of management in the enterprise should be taken into account. In any case, one criterion remains unchanged - the price of the product must provide the maximum level of potential income for the company.

The methods described below are individual characteristics. At the same time, each of them is not without its shortcomings. The enterprise must independently decide on the use of one method or another.

Costly ways to determine the cost of goods

Cost-based pricing methods in marketing involve determining the final cost by adding the sum of production costs and the sum of the expected profit of the company. A prime example is the full cost method.

To obtain its coefficient, it is necessary to establish the sum of variable and fixed costs. Next, add the level of expected profit. The next item indicates the amount of production that needs to be divided by the previous indicators.

The choice of pricing method in marketing in such a simple way is widely used by many Russian companies. There are several strong arguments for this:

It is easier for a firm to obtain data on its own costs than on the needs of consumers.
Price competition will be lower even if competitors use this method.
It is easy to determine the minimum mark of the cost of the product.
Realization at the received price allows you to compensate for the costs of production.
Provides the rate of expected profit.

For objectivity, it is important to mention the shortcomings. The main one is that the company will not have an incentive to reduce costs. The other side is that competition remains unaccounted for, which gives competitors a chance to use this gap in their favor by offering the same products at a lower price. Based on this, we can say that this method is suitable for those industries where there is little competition.

marginal cost method

Pricing methods in marketing involve the use of a marginal cost accounting criterion. The following initial data are taken into account:

The maximum amount of production costs.
Product profitability in % terms.
Cost of goods.

The calculation is simple: variable costs per unit of goods are determined, coefficients are added to them that cover these costs, plus the rate of potential profit.

Direct Cost Accounting

Marketing pricing methods as a tool for determining the optimal cost of goods offer another way: variable costs plus profit in the form of a markup on each unit of production. There is a question about accounting for fixed costs. This item will be taken into account in the amount that arises from the implementation, minus the amount of variable costs.

ROI method

In the list of the main methods of pricing in marketing, the investments made in the production of goods are also taken into account. It is important to remember that marketing takes into account not only the amount of investment, but also the return amount. Any investment involves the goal of receiving a dividend. That is, the return amount must definitely be greater than the investment amount.

The same rule applies to internal investment, that is, when a company invests in marketing campaigns and measures. Thus, the company intends to increase the level of its income. These values must be taken into account in the cost of goods.

In marketing, there is a special formula for calculating the amount of return on investment. According to it, the calculations are made in the following order:

Amount of investment.
The amount of revenue.
The combined sum of gross profit and cost of production.
The amount of return on investment and the amount of investment coverage.

Subtracting from the second paragraph the cost of goods sold and the amount of investment coverage, we find the amount of return.

Target cost method

At this method the cost of the product is taken into account in the calculation base, taking into account the estimated sales volume. However, this method has a significant drawback - it does not take into account the needs and capabilities of consumers, but focuses on the interests of the entrepreneur. In conditions of increased competition, the use of such a method may not meet the expectations of the company and, on the contrary, may lead to stagnation of goods.

Price markup method

Marketing pricing strategies and methods include a variety of approaches. One of them is the multiplication of the price of purchase and sale of goods by a special multiplier. For the company, this method is beneficial in that it does not require the cost of researching demand, since in this case it is not of fundamental importance.

In general, pricing methods in marketing are briefly divided into two types: consumer demand-based pricing and value-based pricing. The surcharge method belongs to the second type.

When promoting such products, the company needs to know not the volume of demand, but the consumer's perception of the product, its value and the approximate amount that the client is willing to pay for it. Based on such data, the marketing company will use non-price methods of influencing the client, aimed at creating a certain image of the product.

With this approach, the company's costs serve only as an economic limiter, below which the cost of the goods cannot be lowered. However, there are cases of dumping. This is done to drive competitors out of the market and can be used as a temporary strategy. In the long run, this method is not justified, since the value for goods in high price categories is precisely the high cost.

A striking example of a similar marketing ploy is the cost of a cup of coffee in an eatery and in a restaurant. As the analysis of pricing methods and strategies in marketing shows, in the second case, the consumer is ready to pay several times more just for a special atmosphere.

Market Methods for Determining Prices

This section of marketing has three main methods:

Orientation to the opinion of consumers.
Orientation to the strategies of competitive companies.
Normative-parametric approach.

The first type of methods is divided into the following types:

Evaluation of the maximum acceptable cost.
Demand oriented.
Limit analysis.

The main methods of pricing in marketing for targeting competitors involve the following subspecies:

Focus on market leader prices.
Based on customary prices for buyers.
tender type.
auction method.
Reference to market prices.

The normative-parametric approach implies the following types of calculation:

The method of specific indicators.
aggregate method.
Regression analysis method.
Point method.

The value of pricing in marketing is individual for each company. She is absolutely free in her choice. But there are factors to consider when pricing. One of the most important is the product life cycle. If it has long been known to buyers and has its place in the market, then sliding, elastic, preferential or consumer methods are applicable.

New products will be successful if they apply the "skimming cream" method, the benchmark for the leader, psychological tricks or method of market penetration.

Practice in Russia

The entrepreneur has the right to independently set the price using any available pricing method. In general, two approaches to pricing can be noted: setting individual prices and setting a single cost.

The pricing process is the only marketing measure that does not require a monetary investment. But at the same time, experts believe that the pricing policy of many companies is not well developed and there are significant shortcomings. The most common errors:

Insufficient adjustment of prices to changing market conditions.
Excessive updating on the costs of pricing.
Prices are not tied to other marketing elements.
Prices are not differentiated by individual product line.

The most advantageous position is occupied by the prices of innovations. As you know, an imitation product cannot boast of freedom in choosing prices. In contrast, innovative products can afford to use the tactics of "skimming cream", penetration into the market or benchmarking the value of the product.

Asking the question of what are the methods of marketing pricing, one should especially note the popular pricing policy - the strategy of low prices. This method is universal. It pursues several goals at once: rapid introduction into the market, displacement of competitors' products and expansion of the sales area. Usually, after the full introduction of the product into the market, a revision of the pricing policy takes place. Two options are possible here: the use of a different targeted policy that leads to an increase in the cost of goods, or an increase in profits due to sales volume. Following this logic, the use of a low price strategy turns out to be an economically justified step.

In what cases can low prices be applied?

At the same time, when implementing a low price strategy, some external parameters should be taken into account:

The market reacts sensitively to price changes.
As sales volume increases, costs should tend to decrease.
Presence of fierce competition in the market.

The presence of such factors in the field of activity of the company is guaranteed to lead to the success of the strategy of low prices.

When can you sell more?

The high price strategy also pays off economically. But some conditions are necessary. First of all, they relate to the product itself. It must be either new to the market or protected by patents or the result of high-tech processes.

From the side of the market, such conditions are important as the formed image of a company or product, the presence of a sufficient number of target audience, the highest level competitiveness and small volumes of production.

Once a product has established itself in the market, the company can develop products at a lower price point. This results in increased sales and increased profits.

Conclusion

It is generally accepted that a product will be profitable if it is final cost covers all production costs. This is an overly general statement. But the potential of each market is much deeper. Marketing methods help to recognize it and put it into action. And their skillful application is half the success for any company.