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Pricing

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Marketing Key concepts Product Pricing Promotion !istribution "ervice #etail $rand management %ccount&based marketing 'arketing effectiveness 'arket research 'arket segmentation 'arketing strategy 'arketing management 'arket dominance Promotional content %dvertising $randing !irect marketing Personal "ales Product placement Public relations Publicity "ales promotion "e( in advertising Under)riting Promotional media Printing Publication $roadcasting *ut&of&home +nternet marketing Point of sale ,ovelty items !igital marketing +n&game Word of mouth
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Wikibooks has a book on the topic of Marketing Pricing is one of the four Ps of the marketing mi(. The other three aspects are product, promotion, and place. +t is also a key variable in microeconomic price allocation theory. Price is the only revenue generating element amongst the .ps, the rest being cost centers. Pricing is the

manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fi(ed amount, /uantity break, promotion or sales campaign, specific vendor /uote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. %utomated systems re/uire more setup and maintenance but may prevent pricing errors.

Contents
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2 3uestions involved in pricing 4 What a price should do 5 !efinitions . %pproaches 6 Tactics 7 "ee also 8 #eferences 9 :(ternal links

[edit] Questions involved in pricing


Pricing involves asking /uestions like:

;o) much to charge for a product or service< This /uestion is that a typical starting point for discussions about pricing, ho)ever, a better /uestion for a vendor to ask is & ;o) much do customers value the products, services, and other intangibles that the vendor provides. What are the pricing ob=ectives< !o )e use profit ma(imi>ation pricing< ;o) to set the price<: ?cost&plus pricing, demand based or value&based pricing, rate of return pricing, or competitor inde(ing@ "hould there be a single price or multiple pricing< "hould prices change in various geographical areas, referred to as >one pricing< "hould there be /uantity discounts< What prices are competitors charging< !o you use a price skimming strategy or a penetration pricing strategy<

What image do you )ant the price to convey< !o you use psychological pricing< ;o) important are customer price sensitivity ?e.g. Asticker shockA@ and elasticity issues< Ban real&time pricing be used< +s price discrimination or yield management appropriate< %re there legal restrictions on retail price maintenance, price collusion, or price discrimination< !o price points already e(ist for the product category< ;o) fle(ible can )e be in pricing< : The more competitive the industry, the less fle(ibility )e have.
o

The price floor is determined by production factors like costs ?often only variable costs are taken into account@, economies of scale, marginal cost, and degree of operating leverage The price ceiling is determined by demand factors like price elasticity and price points

%re there transfer pricing considerations< What is the chance of getting involved in a price )ar< ;o) visible should the price be< & "hould the price be neutral< ?ie.: not an important differentiating factor@, should it be highly visible< ?to help promote a lo) priced economy product, or to reinforce the prestige image of a /uality product@, or should it be hidden< ?so as to allo) marketers to generate interest in the product unhindered by price considerations@. %re there =oint product pricing considerations< What are the non&price costs of purchasing the product< ?eg.: travel time to the store, )ait time in the store, disagreeable elements associated )ith the product purchase & dentist &C pain, fishmarket &C smells@ What sort of payments should be accepted< ?cash, check, credit card, barter@ Pricing

[edit] W at a price s ould do


% )ell chosen price should do three things:

achieve the financial goals of the company ?e.g., profitability@

fit the realities of the marketplace ?Will customers buy at that price<@ support a productDs positioning and be consistent )ith the other variables in the marketing mi(
o

price is influenced by the type of distribution channel used, the type of promotions used, and the /uality of the product

price )ill usually need to be relatively high if manufacturing is e(pensive, distribution is e(clusive, and the product is supported by e(tensive advertising and promotional campaigns a lo) price can be a viable substitute for product /uality, effective promotions, or an energetic selling effort by distributors

From the marketerDs point of vie), an efficient price is a price that is very close to the ma(imum that customers are prepared to pay. +n economic terms, it is a price that shifts most of the consumer surplus to the producer. % good pricing strategy )ould be the one )hich could balance bet)een the price floor ?the price belo) )hich the organi>ation ends up in losses@ and the price ceiling ?the price beyond )hich the organi>ation e(periences a no demand situation@.

[edit] !efinitions
Pricing is the process of determining )hat a company )ill receive in e(change for its products. Pricing factors are manufacturing cost, market place, competition, maket condition, 3uality of product. The effective price is the price the company receives after accounting for discounts, promotions, and other incentives. Price lining is the use of a limited number of prices for all your product offerings. This is a tradition started in the old five and dime stores in )hich everything cost either 6 or 2E cents. +ts underlying rationale is that these amounts are seen as suitable price points for a )hole range of products by prospective customers. +t has the advantage of ease of administering, but the disadvantage of infle(ibility, particularly in times of inflation or unstable prices. % loss leader is a product that has a price set belo) the operating margin. This results in a loss to the enterprise on that particular item, but this is done in the hope that it )ill dra) customers into the store and that some of those customers )ill buy other, higher margin items. Promotional pricing refers to an instance )here pricing is the key element of the marketing mi(. The price"quality relations ip refers to the perception by most consumers that a relatively high price is a sign of good /uality. The belief in this relationship is most important )ith comple( products that are hard to test, and e(periential products that cannot be tested until used ?such as most services@. The greater the uncertainty surrounding a product, the more consumers depend

on the price /uality hypothesis and the more of a premium they are prepared to pay. The classic e(ample of this is the pricing of the snack cake T)inkies, )hich )ere perceived as lo) /uality )hen the price )as lo)ered. ,ote, ho)ever, that e(cessive reliance on the price /uantity relationship by consumers may lead to the raising of prices on all products and services, even those of lo) /uality, )hich in turn causes the price /uality relationship to no longer apply. Premium pricing ?also called prestige pricing@ is the strategy of consistently pricing at, or near, the high end of the possible price range to help attract status&conscious consumers. % fe) e(amples of companies )hich partake in premium pricing in the marketplace include #ole( and $entley. People )ill buy a premium priced product because: 2. They believe the high price is an indication of good /ualityF 4. They believe it to be a sign of self )orth & AThey are )orth itA & +t authenticates their success and status & +t is a signal to others that they are a member of an e(clusive groupF 5. They re/uire fla)less performance in this application & The cost of product malfunction is too high to buy anything but the best & e(ample : heart pacemaker. The term #oldilocks pricing is commonly used to describe the practice of providing a Agold& platedA version of a product at a premium price in order to make the ne(t&lo)er priced option look more reasonably pricedF for e(ample, encouraging customers to see business&class airline seats as good value for money by offering an even higher priced first&class option.0citation needed1 "imilarly, third&class rail)ay carriages in Gictorian :ngland are said to have been built )ithout )indo)s, not so much to punish third&class customers ?for )hich there )as no economic incentive@, as to motivate those )ho could afford second&class seats to pay for them instead of taking the cheaper option.0citation needed1 This is also kno)n as a potential result of price discrimination. The name derives from the Holdilocks story, in )hich Holdilocks chose neither the hottest nor the coldest porridge, but instead the one that )as A=ust rightA. 'ore technically, this form of pricing e(ploits the general cognitive bias of aversion to e(tremes. This practice is kno)n academically as AframingA. $y providing three options ?i.e. small, medium, and largeF first, business, and coach classes@ you can manipulate the consumer into choosing the middle choice and thus, the middle choice should yield the most profit to the seller, since it is the most chosen option. !emand$%ased pricing is any pricing method that uses consumer demand & based on perceived value & as the central element. 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. Pricing factors are manufacturing cost, market place, competition, market condition, /uality of product. Multidimensional pricing is the pricing of a product or service using multiple numbers. +n this practice, price no longer consists of a single monetary amount ?e.g., sticker price of a car@, but rather consists of various dimensions ?e.g., monthly payments, number of payments, and a do)npayment@. #esearch has sho)n that this practice can significantly influence consumersD ability to understand and process price information 021

[edit] &pproac es
Pricing as the most effective profit lever. ?Template:Bite book:@ Pricing can be approached at three levels.The industry, market, and transaction level. Pricing at the industry level focuses on the overall economics of the industry, including supplier price changes and customer demand changes. Pricing at the market level focuses on the competitive position of the price in comparison to the value differential of the product to that of comparative competing products. Pricing at the transaction level focuses on managing the implementation of discounts a)ay from the reference, or list price, )hich occur both on and off the invoice or receipt.

[edit] 'actics
'icromarketing is the practice of tailoring products, brands ?microbrands@, and promotions to meet the needs and )ants of microsegments )ithin a market. +t is a type of market customi>ation that deals )ith pricing of customer product combinations at the store or individual level.

[edit] (ee also


Iook up pricing in Wiktionary, the free dictionary.

Product life cycle management Galue pricing Price elasticity of demand ,e) Product Pricing Time based pricing "uggested retail price Purchasing po)er Psychological pricing 'arket&%daptive Pricing *ptions pricing Hroup buy

Bost the limit of price !emandTec

[edit] )eferences

:ngineering ,e) Product "uccess: the ,e) Product Pricing Process at :merson :lectric. $y Jerry $ernstein and !avid 'acias. J +ndustrial 'arketing 'anagement 52, 62 K 7. ?4EE4@ 4EE2 :lsevier "cience +nc.

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