pricing methods

pricing methods

the approaches used by firms to PRICE goods or services. Three basic pricing methods may be distinguished:

1. a COST-BASED PRICING method which relates the price of a product to the costs involved in producing and distributing it;
2. a DEMAND-BASED PRICING method which relates the price of a product to the intensity of total demand for it and acknowledges differences in demand intensities between subgroups of buyers;
3. a COMPETITION-BASED PRICING method which relates the price of a product to the prices charged by rivals. In practice, firms use a combination of these methods in setting their prices. Other pricing methods include: conversion cost pricing, target pricing, variable-cost pricing, marginal-cost pricing and return on investment pricing. See PRICING OBJECTIVES, PRICING POLICY.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson