Q.Explain any three methods/strategies of pricing used by firms, with an example where relevant.

Firms choose among several established methods when deciding a product's price, depending on cost, competition, and their pricing objective.

1. Cost-plus pricing: the firm calculates the total cost of producing one unit and adds a fixed percentage or fixed amount as its profit margin. For example, if a unit costs the firm ₹200 to produce and it wants a 25% mark-up on cost, the price works out to ₹200 + (25% of ₹200) = ₹200 + ₹50 = ₹250. This method is simple and ensures costs are covered, but does not directly consider what customers are willing to pay or what competitors charge.

2. Competition-based pricing: the firm sets its price mainly with reference to what rival firms charge for similar products — pricing at, below, or above the prevailing market rate depending on how it wants to position itself (as a low-cost option, a matched option, or a premium option).

3. Skimming pricing: used mainly for a new, often innovative, product — the firm deliberately sets a high initial price to recover development costs quickly from customers willing to pay a premium for being early adopters, then gradually lowers the price over time to draw in more price-sensitive segments of the market. …

Confusing skimming and penetration pricing with each other — skimming starts HIGH (to recover cost from early adopters) and typically falls over time, while penetration starts LOW ( …