Define Pricing? What are the types of pricing policies?

Definition of Pricing

“Price is the amount of money or goods for which a thing is bought or sold”. The price of a product may be seen as a financial expression of the value of that product. For a consumer, price is the monetary expression of the value to be enjoyed/benefits of purchasing a product, as compared with other available items.

The concept of value can, therefore, be expressed as:
(perceived) VALUE = (perceived) BENEFITS – (perceived) COSTS
A customer’s motivation to purchase a product comes firstly from a need and want:e.g.
• Need: "I need to eat
• Want: I would like to go out for a meal tonight")

The second motivation comes from a perception of the value of a product in satisfying that
need/want (e.g. "I fancy a McDonalds").
The perception of the value of a product varies from customer to customer because perceptions of benefits and costs vary. Perceived benefits are often largely dependent on personal taste (e.g. spicy versus sweet, or green versus blue). To obtain the maximum possible value from the available market, businesses try to ‘segment’ the market – that is to divide up the market into groups of consumers whose preferences are broadly similar – and to adapt their products to attract these customers.

In general, a products perceived value may be increased in one of two ways – either by:
(1) Increasing the benefits that the product will deliver, or,
(2) Reducing cost.

TYPES OF PRICING POLICIES
There are many ways to price a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations.
A. Cost-Based Pricing Policies: Setting price on the basis of the total cost per unit. There are four methods as follows:
1. Cost Plus Pricing- cost plus a percentage of profit
2. Target Pricing- cost plus a predetermined target rate of return
3. Marginal Cost Pricing- fixed plus variable costs
4. Break-Even Pricing- at break-even point i.e, where total sales=total cost{no profit, no loss point}

B. Demand-Based Pricing Policies: Setting price on the basis of the demand for the product. There are two methods as follows:
1. Premium Pricing-Use a high price where there is a uniqueness about the product or service. This approach is used where a substantial competitive advantage exists. Such high prices are charged for
2. Differential Pricing-Same product is sold at different prices to different consumers.

C. Competition Based Pricing Policies: Setting price on the basis of the competition for the product. There are three methods as follows:
1. Going Rate Pricing-Many businesses feel that lowering prices to be more competitive can be disastrous for them (and often very true!) and so instead, they settle for a price that is close to their competitors.
2. Customary Pricing- Prices for certain commodities get fixed because they have prevailed over a long period of time.
3. Sealed Bid Pricing-Firms have to quote less price than that of competitors. Tenders, winning contracts, etc.

D. Value-Based Pricing Policies: It is based on value to the customer. The following are the pricing method based on customer value.
1. Perceived- Value Pricing: This is the method of judging demand on the basis of value perceived by the consumer in the product. This method is concerned with setting the price on the basis of value perceived by the buyer of the product rather than the seller’s cost.
2. Value Of Money Pricing: Price is based on the value which the consumers get from the product they buy. It is used as a competitive marketing strategy