Develop A Foundational

Knowledge Of Pricing To Understand Its Role In Marketing

3.06

Characteristics Of Effective Pricing

Attracts The Customer’s AttentionEnforces The Idea Of “Value” For The MoneyTakes Into Account:

Cost To Produce What Competitors Are Charging What Customers Are Willing To Pay

What Is Being Priced?

The Good or Service itselfAny additional services or warrantiesThe Benefit or Value to the customer

How Pricing Affects Product/Service Management Decisions

Pricing affects the quantity the customers will purchase. Will the company sell enough product to make a profit at that price? Decisions On Whether To Expand A Product Line Or

Close It Are Related To What Price Can Be Charged.

How Pricing Affects Place (Distribution) Decisions

• Shipping Products Long Distances Can Significantly Increase The Price Of An Item

• Knowing What Customers Are Willing To Pay, what Competitors Are Charging, And Then Determining the Cost To Produce And Ship The Item Have To Be Considered When Setting Prices.

How Pricing Affects Promotion Decisions

• When Setting Prices And Promotion Plans The Company Must Consider:– Is The Company Trying To Break Into An Existing

Market? (then the price needs to be lower than the competition)

– Is It Trying To Expand Into New Markets? (if the company is the first one to introduce the

product to the market, the pricing can be high)– What Is The Competition Doing? (competitive intelligence)

Pricing Objectives

Pricing Objectives Are The Goals A Company Hopes To Achieve Through Its Pricing Decisions

o Profit maximization (make as much profit as possible)

o Increase market share (take share away from the competition)

o Maintain market share (stay competitive)

Illegal pricing practices and pricing laws

Price Fixing : Collaborating With Other Companies (Competitors) To Set Prices For A Company’s Products

Predatory Pricing : The Practice Of Selling A Product Or Service At A Very Low Price, Intending To Drive Competitors Out Of The Market

Price Discrimination: Charging different prices to similar customers in similar situations to create unfair competition

Illegal pricing practices and pricing laws

Bait-and-switch Advertising: Customers are "Baited" by advertising for a product or service at a low price and that advertised product is not available. The sales person tries to switch the customer to a more expensive product. (the company never intended to sell the advertised product) (this is not a rain-check situation where a company is simply out of a product)

Dumping: foreign producers offer their products to domestic consumers at lower prices than the domestic producers can afford to sell at (below market pricing)

Illegal pricing practices and pricing laws

Deceptive Pricing: The use of False or Misleading Statements in advertising (Examples Of Deceptive Pricing Are Savings Claims, Price Comparisons, "Special" Sales, "Two-for-one" Sales, "Factory" Prices, Or "Wholesale" Prices that aren’t true)

Resale Price Maintenance: manufacturers try to force retailers to sell their products at certain (usually high) prices and punish the retailer by withholding merchandise or discounts if the retailer doesn’t comply

Ethical Considerations In Setting Prices

Unethical example:Making Pricing So Complex That Customers

Don’t Understand How It Works. (The Company Might Be Taking Financial

Advantage Of Customers)

Positive Effects Of Pricing Laws

• Customers Know That They Aren’t Being Taken Advantage Of

• Pricing Is Competitive 

Negative Effects Of Pricing Laws

• Prices Become Less Likely To Be Modified (Even Down) Because The Law Might See The Change In A Negative Manner.

Other pricing tactics

Loss-Leader Pricing: legal pricing tactic that offers popular products at or below cost to bring customers to that retailer in hopes of selling additional items at a profit. (many states have adopted minimum price laws to prevent retailers from selling certain goods below costs to avoid predatory pricing practices)

Flexible Pricing: every customer negotiates their own price (car dealerships mostly use flexible pricing)

One Price Pricing: every item in that retail store is at the same price (Dollar Store)

Identify Ways That The Use Of Technology Impacts The Pricing Function

• Technology allows data to be easily collected, collated and analyzed. Pricing decisions can be effectively reviewed with accurate and timely information to determine the best time to adjust prices and by how much the prices need to change.

• Pricing can also be inputted into the computer cash register system reducing the number of pricing errors at the cash register.

• Examples of technology in pricing are barcodes, scanners, UPC’s and merchandise tags.

• Technology makes it much easier to change prices

The Selling Price

The Price At Which A Product Is ACTUALLY Sold To The Customer

Retail Price

– Retail Price Is The Initial Amount That The Company Would Like To Charge For An Item (suggested retail price)

Importance Of Selling Price

– The Selling Price Must Bring Enough Profit To The Seller So The Company Can Stay In Business

Factors Affecting Selling Price

– Competitors’ Prices– What Customers are Willing To Pay (demand)– What The Item Costs to Produce, Transport,

and Sell– External factors such as current economic

conditions

How Government Affects Selling Price

– Regulations and Laws Can Affect What Companies Will Charge.

– Tariffs And Additional Taxes (Think Gasoline) Can Significantly Change Prices• The Price Of Gas In NC vs. SC

How Competition Can Affect Selling Price

– If Competition Raises Its Prices, A Company Might Be Able To Make More Profit By Raising Prices

– The Opposite Is True For Lowering Prices

How The Nature Of A Business Can Affect Selling Price

– How Much Competition Does Your Business Have In The Area Or Online?

– Are You Selling Big Ticket Or Inexpensive Items?– Are Your Products Seasonal?– Are You The Industry Leader Or A Follower?– How are you Positioning your product?– What is your brand image?