Understanding Pricing Strategies: Key Factors and Methods for Effective Price Planning

1. Pricing The final element

2. Price • Represents the value of a good or service for both the seller and the buyer • It describes all forms of purchase, both monetary and non-monetary

3. Price-planning • Systematic decision-making by an organization regarding all aspects of buying

4. Importance • Part of the exchange • Deregulation • Forms are more cost-conscious • Global economy= greater interest in currency valuations and exchange rates • In slow economies it is hard to raise prices

5. Relationship to other marketing elements • Prices vary over product life cycle • Affects customer service • Competitive with other firms, yet profitable • Sales force may need flexibility • As costs change, prices or other features may need to change

6. Approaches • Price-based • Non-price based

7. Factors affecting price • Demand • Costs • Government regulations (FTC) • Price fixing • Price discrimination • Unfair sales acts • Unit pricing • Price advertising • Channel members • Competition

8. Developing and applying a pricing strategy

9. Pricing objectives • Sales-based • Profit-based

10. Broad price policy • Sets the overall direction and tone for a firm’s pricing efforts and makes sure pricing decisions are coordinated with the firm’s choices as to a target market, an image, and other marketing mix factors

11. Methods of setting prices • Cost-based pricing • Demand based pricing • Competition based pricing

12. Cost-based pricing • Cost-plus pricing • Cost of the item + desired profit= price

13. Demand-based pricing • A firm sets prices after studying consumer desires and prices acceptable to the target market • Demand-minus pricing • Chain markup pricing • Price discrimination

14. Competition-based pricing • Using competitors’ pricing rather than demand or cost considerations as primary pricing guideposts • Price above • Price below • Meet competition • Price leadership

15. Considerations in implementing a price strategy • Customary vs. variable pricing • One price vs. flexible pricing • Odd pricing • Price-quality association • Leader pricing • Multiple unit pricing • Price lining • Price bundling • Geographic pricing • Purchase terms • Price adjustments

16. Customary vs. variable pricing • Customary pricing a firm sets prices and seeks to maintain them for an extended period of time • Variable pricing- lets a firm intentionally lower or raise prices in response to cost fluctuations or differences in consumer demand

17. One price policy vs. flexible pricing • One-price policy - lets a firm charge the same price to all customers seeking to purchase a good or service under similar conditions • Flexible pricing – a firm sets prices based on the consumer’s ability to negotiate or the buying power of a large customer

18. Odd pricing • Set prices below even dollar amounts

19. Price-quality association • Consumer may believe high prices represent high quality and low prices represent low quality • Prestige pricing

20. Leader pricing • Price select items low to attract customers

21. Multiple-unit pricing • A firm offers discount to customers to encourage them to buy in quantity, as to encourage overall sales volume

22. Price lining • Involves selling products within a range of prices, with each representing a distinct level of quality or features • Benefits • Constraints

23. Price bundling • Sell a basic product, options, and customer service for one total price

24. Geographic pricing • FOB mill or factory • FOB destination • Uniform delivered • Zone pricing • Base-point pricing

25. Purchase terms • Discounts • Payment timing

26. Price adjustments • List prices • Escalator clauses • Surcharges • Additional markups • Markdowns • Rebates