There are many ways to present the ‘price’ for a product or service to the customer, which is called price setting. Some of the better-known methods are described below.
- Cost plus a percentage of the cost. (Usually service oriented)
- Breakeven, that is, whatever it costs to produce the product or provide the service. (Usually non-profit organizations, but not necessarily)
- Target profit (e.g.: make a 20% profit before tax. This implies that you understand all of your operating costs very well.)
- Perceived value (price to the consumer’s expectation)
- Competitive related (price using competitive price as a base)
- Sealed bid (usually construction projects)
- Two part pricing (fixed fee plus variable usage rate eg: telephone service)
- Bundled pricing that combines multiple products and/or services under one price.
- Discounts for cash payment (when cash flow is important)
- Quantity discounts (when volume is important)
- Trade-in price (when there is some residual value for a trade-in item)
- Update price for an improvement to an existing product (this allows you to benefit from current customer base)
- Discounted price to a reseller (to expand volume through channels of distribution)
- Seasonal discount (to even out volume which allows a consistent production process)
- Sales price (to promote demand, with volume hopefully offsetting reduced price)
- Psychological pricing (e.g.: to create an impression of a lower price, $199.95 vs. $200)
- Geographical/sales site location (e.g.: varying prices for fuel in different geographical locations)
- Price plus shipping (catalog/mail order type of sales)