basing-point pricing

Examples of basing-point pricing in the following topics:

• Geographic Pricing

  • Geographical pricing is the practice of modifying a basic list price based on the location of the buyer to reflect shipping costs.
  • Geographical pricing is the practice of modifying a basic list price based on the geographical location of the buyer.
  • Ownership of the goods is transferred to the buyer as soon as it leaves the point of origin.
  • Basing point pricing: Certain cities are designated as basing points.
  • All goods shipped from a given basis point are charged the same amount.

• Demand-Based Pricing

  • For example, items are typically priced at a point a little less than a round number ($2.99).
  • These include: price skimming, price discrimination and yield management, price points, psychological pricing, bundle pricing, penetration pricing, price lining, value-based pricing, geo and premium pricing.
  • Price points are prices at which demand for a given product is supposed to stay relatively high .
  • Psychological pricing is one cause of price points.
  • Illustration of price points, or concave-downward cusps on a demand curve (P is price; Q is quantity demanded; A, B, and C are the price points)

• Interpretations of Price Elasticity of Demand

  • Perfectly inelastic demand is graphed as a vertical line and indicates a price elasticity of zero at every point of the curve.
  • Since PED is measured based on percent changes in price, the nominal price and quantity mean that demand curves have different elasticities at different points along the curve.
  • In this case the PED value is the same at every point of the demand curve.
  • The PED value is the same at every point of the demand curve.
  • The price elasticity of demand for a good has different values at different points on the demand curve.

• Psychological Pricing

  • Psychological pricing is a marketing practice based on the theory that certain prices have meaning to many buyers.
  • Inferring quality from price is a common example of the psychological aspect of price.
  • We call prices that end in such digits as 5, 7, 8, and 9 "odd prices. " Examples of odd prices include: $2.95, $15.98, or $299.99 .
  • Psychological pricing is one cause of price points.
  • The psychological pricing theory is based on one or more of the following hypotheses:

• Measuring the Price Elasticity of Demand

  • The own-price elasticity of demand is often simply called the price elasticity.
  • There are a few other important points to note about the coefficient value provided by this formula.
  • Since PED is based off of percent changes, the starting nominal quantity and price matter.
  • For example, a drop in the price of $1 from a starting price of $100 is a 1% drop, but if the starting price is $10, it is a 10% drop.
  • PED is based off of percent changes, so the starting nominal values of price and quantity are significant.

• The Law of Supply

  • As the price of a good or service increases, the quantity that suppliers are willing to produce increases and this relationship is captured as a movement along the supply curve to a higher price and quantity combination.
  • The rationale for the positive correlation between price and quantity supplied is based on the potential increase in profitability that occurs with an increase in price.
  • This is also referred to as the equilibrium price and quantity and is depicted graphically at the point at which the demand and supply curve intersect or cross one another.
  • It is the point where there is no surplus or shortage in the market .
  • Supply has a positive correlation with price.

• Markup Pricing

  • In cost-plus pricing, we use quantity to calculate price, but price is the determinant of quantity.
  • This rate of output is based on some percentage of the firm's capacity.
  • The following points explain as to why this approach is widely used:
  • Prices based on full cost look factual and precise and may be more defensible on moral grounds than prices established by other means.
  • Examine the rationale behind the use of markup pricing as a general pricing strategy

• Monopoly Production Decision

  • Nonetheless, a pure monopoly can – unlike a firm in a competitive market – alter the market price for its own convenience: a decrease of production results in a higher price.
  • Because of this, rather than finding the point where the marginal cost curve intersects a horizontal marginal revenue curve (which is equivalent to good's price), we must find the point where the marginal cost curve intersect a downward-sloping marginal revenue curve.
  • However, monopolists have the ability to change the market price based on the amount they produce since they are the only source of products in the market.
  • Identify the point at which the marginal revenue and marginal cost curves intersect and determine the level of output at that point
  • Monopolies produce at the point where marginal revenue equals marginal costs, but charge the price expressed on the market demand curve for that quantity of production.

• Competition-Based Pricing

  • Competitive-based pricing occurs when a company sets a price for its good based on what competitors are selling a similar product for.
  • Competitive-based pricing, or market-oriented pricing, involves setting a price based upon analysis and research compiled from the target market .
  • With competition pricing, a firm will base what they charge on what other firms are charging.
  • One advantage of competitive-based pricing is that it avoids price competition that can damage the company.
  • Status-quo pricing, also known as competition pricing, involves maintaining existing prices or basing prices on what other firms are charging.

• Break-Even Analysis

  • The break-even point (BEP) is the point where expenses and revenue intersect.
  • Based off of this information, the business owners will need to determine if they can make and sell at least 200 tables a month.
  • Try reducing their variable costs (the price paid for the tables by finding a new supplier)
  • By inserting different prices into the formula, you will obtain a number of break-even points, one for each possible price point.
  • This graphs depicts an example of a break-even point based on sales and total costs.