What is Customary pricing? 

Pricing strategies

There are various types of pricing strategies followed in the market. They are psychological pricing, odd pricing, free onboard pricing, customary pricing, prestige pricing, dual pricing, ruling pricing, negotiated pricing, mark up pricing, etc. each one can be explained as follows: 

Psychological pricing: under this method of pricing, the price of the product will be in round figures like $10 or $15. This method is usually preferred by those people who do not believe in the method of odd pricing. 

• Odd pricing: as the name indicates, the price set for the product is an odd number. For example, instead of $10, the price would be set at $9.95. This gives the satisfaction to the customers that the price is slightly lower. 
• Prestige pricing: this pricing strategy is applicable especially for luxury goods where the customers feel pride to pay higher price on the assumption that goods which are rated high will be of superior quality. Examples of these kinds of goods can be electronic goods, cosmetic goods. 
• Ruling price: under this method of pricing, companies fix prices similar to that charged by their peer companies in the market. For example, cement manufacturers in an oligopoly market adopt this policy. 
• Dual pricing: dual pricing is a pricing method wherein the marketers charge different prices for the same product. The price may vary for bulk buyers & for buyers who purchase in small quantities. 
• Administered pricing: this price is decided by the marketer based on some personal factors & factors in general like cost, demand, etc. are not taken into account. 
• Mark up pricing: this is a price that is charged by the retailer after adding some percentage known as his margin of profit to the price fixed by the manufacturer. At this price, the goods would be sold to the consumer. 
• Negotiated pricing: This type of pricing is more common in the manufacture of industrial goods. Manufacturers who buy some heavy components enter into a negotiation with the suppliers in order to deal with the high cost of components or materials. 
• Expected pricing: As the name indicates, this is the price charged taking the expectations of the consumers into consideration. 
• Price lining: Under this type of pricing, the price once decided for a product will not change even after a long time period. 
• Sealed tender pricing: This type of pricing is more popular when awarding construction contracts to bidders. Quotations will be encouraged from various parties & the one who promises to complete the work at the lowest price will be awarded the contract. 
• Monopoly pricing: The term mono refers to single or one. The price is fixed by the marketer who has no rival in the market is called monopoly pricing. 
• Free on-board pricing: This is a price charged when the goods are to be delivered to the location of the buyer. In case of origin, the buyer himself will bear the transportation charges & in case of free on-board destination, the buyer need not pay any transportation charges. 
• Cost, insurance & freight price: This price is more applicable for importers who pay the price of the product including cost, insurance & freight charges. 
• Penetration pricing: Penetration pricing is a type of pricing strategy wherein the price of the product will be less during the initial stages with a view to making the product enter into the market & occupy a good position in the market. This type of price is adopted when the product is price sensitive & also faces huge competition in the market. Though the profits will be less during the initial period, they will increase gradually in the future. 
• Skimmed pricing: This is a type of pricing in which the price will be fixed at a higher rate on the product in the introduction stage & then reducing the same when there are rivals entering the market. This is an approach followed by the marketer when he is not sure about the exact price for the product. This is considered to be a trial & error method of pricing. When the introductory price is high, it implies that the customers are satisfied with the product quality & are ready to pay a higher price. On the other hand, if the customers are not satisfied, the price would be reduced by the marketer. 

Definition of Customary Pricing

Customary pricing is defined as a pricing method in which goods are priced on the basis of collective opinion of the consumers about its value. This type of pricing method is often used for goods or services which have a history of constant market of being sold at a specific price. Hence it is difficult for new products & services. 

Customers generally expect the price of the products to be below their expectation & they don’t encourage a price above their expectation. 

For example, customers would like to pay a price of $10 for services like music streaming music. This is what the consumers expect. If a company launches the same service at the rate of $12, it may have only a few subscribers. If another company provides the same service at the rate of $8, it may have many subscribers. 

Benefits and Drawbacks of Customary Pricing

he main benefit of customary pricing is that when the prices are on the basis of expectations of the consumers, it will be easy for the companies to earn their loyalty as well. Loyalty helps in increasing the customer experience & also increases the chances of consumers buying more of company’s goods. This can help the company to generate good business profits & also retain a long term position in the market even if a lot of rivals enter the market. 

The problem with customary pricing is that when customer’s expectations are considered, at times it can happen that it may not be profitable for the company to fix that particular price after incurring huge costs in creating the product. In such case, the company must be ready to sacrifice a little of its profits to gain customer loyalty.

Context and Applications 

This topic is significant in the professional exams for both undergraduate and graduate courses, especially for:  

• Bachelor of Business Administration 
• Master of Business Administration