One week from Exam 2, over Chapters 7-12. Still cold. Temperature dropped sharply yesterday.Talking about pricing today. Pricing is an important component of marketing.
If the price is too high, you reduce sales. If it’s too low, you leave money on the table.
Price can go by any number of names, but it all works out to how much a purchase costs.
Price can be an indicator of value or quality. Particularly when the consumer is unfamiliar with the product, people tend to assume more expensive products are more valuable. Conversely, products with known high quality are expected to be priced accordingly. Nobody trusts a $50 Rolex.
Demand Oriented Approaches to setting Price Level
- Skimming Pricing — Set a high price initially, and gradually lower the price over time.
- Penetration Pricing — Set a very low initial price, to get market share.
- Prestige Pricing — Set a high price to indicate high quality or status.
- Odd-Even Pricing — Give product a price under a round number ($49.99)
- Target Pricing
- Bundle Pricing — Package multiple items together at lower price than all items individually
Cost Oriented Approaches
- Standard Markup Pricing — Take the cost of production, and mark it up a normal percentage
- Cost-Plus Pricing — Take the cost of production, and mark it up a fixed amount
Profit Oriented Approaches
- Target Profit Pricing
- Target Return-On-Sales Pricing
- Target Return-On-Investment Pricing
Competition-Oriented Approaches
- Customary Pricing — People in the same industry price the same in the same markets
- Above- At- or Below- Market Pricing — Certain companies intentionally place themselves somewhat above, below, or at the price of the competitors
- Loss-Leader Pricing — Doesn’t mean selling product at a loss. Means selling at a loss compared to what could be achieved.