Download Identify pricing strategies for making effective pricing decisions.

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.
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?
Steps in
Setting Price
 Study the competition: How will you
respond to competitor’s 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.
Cost Oriented Pricing
 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.
 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.
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.
Competition Oriented Pricing
 Used by all
planners to some
degree
 Does not consider
costs and expenses
or profit goals in
the pricing process
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: Backto-School Sale
Fixed pricing (One-Price Policy): Charging the
same prices to all customers regardless of the
quantity of the purchase.
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.
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.
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.