9.00 Explain pricing strategies for making effective pricing decisions.

1
9.00 Explain pricing strategies for making
effective pricing decisions.
D. MARKETING A SMALL BUSINESS

• 9.02 Explain pricing policies and strategies
  that help businesses meet pricing objectives.

2
Steps in Setting Price

• Determine pricing objectives What is your
  purpose in setting a price?
• Study costs Price planning must include an
  examination of business costs.
• Estimate demand How many products can you sell
  in a given time period?

3
Steps in Setting Price

• Study the competition How will you respond to
  competitors prices?
• Decide on a pricing strategy Select the
  strategy with the greatest potential for profit.
• Set your price Monitor sales, customer
  reactions, and company goals to plan for needed
  changes.

4
Cost Oriented Pricing

• Mark-up pricing
• Wholesalers retailers
• Adds a predetermined percentage to cost of
  products
• Same markup applied to all products carried by
  the business
• Cost-plus pricing
• Manufacturers service organizations
• Examines costs then adds standard markup
• Products services are all considered
  individually.

• Implemented by carefully examining all of the
  costs associated with carrying a product and
  selling it to consumers then adding the desired
  profit to arrive at a selling price.

5
Demand Oriented Pricing

• Most effective when selling products with
  inelastic demand
• Requires price planners to estimate the value
  customers place on products and set prices
  accordingly
• When selling products with elastic demand, an
  inaccurate estimation can undermine the success
  of a business.

6
Competition Oriented Pricing

• Used by all planners to some degree
• Does not consider costs and expenses or profit
  goals in the pricing process

7
Specific Pricing Techniques

• Promotional pricing Selling a product at a
  
  
  
  
  temporarily lower price to attract
  customers.
• Loss leaders Selling a product below cost in an
  effort to
  
  
  
  increase customer traffic.
• Special event pricing Sales events designed to
  attract
  
  
  
  customers and encourage them to buy.
  Example Back-
  
  
  
  to-School Sale

• Fixed pricing (One-Price Policy) Charging the
  
  
  
  
  same prices to all customers regardless
  of the
  
  
  
  quantity of the purchase.

8
Specific Pricing Techniques

• Variable pricing (Flexible-Price Policy)
  
  
  
  
  Encourages customers to bargain with
  sellers in an
  
  
  
  effort to obtain the best
  price.
• Price lining Establishing price points between
  
  
  
  
  products in a product line used to
  communicate
  
  
  
  differences in quality and/or
  service to consumers.
• Unit pricing Stating the price of a product per
  unit
  
  
  
  of standard measure.

9
Specific Pricing Techniques

• Psychological pricing Used by organizations
  that
  
  
  
  believe that customers base their
  perceptions of
  
  
  
  products on price and that
  these perceptions affect
  
  
  
  customer buying
  decisions.
• Odd/even cent pricing Prices ending in odd
  
  
  
  
  numbers communicate a bargain. Prices
  ending in
  
  
  
  even numbers communicate quality.
• Prestige pricing Customers equate high price
  with
  
  
  
  high quality. This technique sets a
  higher-than
  
  
  
  average price for products to
  communicate quality
  
  
  
  and status.

10
Specific Pricing Techniques

• Pricing for new products Price planning is a
  vital
  
  
  
  step in ensuring product success for
  new products.
• Skimming pricing Setting a high price to
  capitalize
  
  
  
  on demand when introducing a
  product that has little
  
  
  
  competition and will
  appeal to customers who like to
  
  
  
  be the first to
  have the latest products.
• Penetration pricing Setting a low price to
  motivate
  
  
  
  customers to purchase when
  introducing a product
  
  
  
  into a competitive
  market and attempting to gain
  
  
  
  customer
  trial.