Make Smart Choices in Pricing Options

JWI 518, Marketing in a Global Environment, Week7 Summary, 11/25/12


This week we learned the importance of making smart choices in pricing and how to develop sound pricing strategies to support the firm's overarching objectives.

5 steps to setting prices effectively
****************************
To set prices effectively, a company follows these steps: (1) know the firm's strategic market objective, (2) determine demand, (3) estimate costs, (4) analyze competitor's costs, prices and offers, and (5) pick a compelling pricing strategy - including pricing method and final price.


Pricing Options
*************
Pricing options include target return pricing (build profit margin into price; also known as cost-plus pricing), going-rate pricing (match competitors offer), perceived value pricing (consumer perception focused), value-in-use pricing (guarantee value and participate in up side or down side of the firm). To adapt pricing, companies also use discounts & allowances, offsets, special financing, customer segment pricing, channel pricing, product-line pricing, optional-feature pricing, two-part pricing, product-bundling pricing, geographical pricing, promotional pricing and differentiated pricing.


Lower Perceived Cost, Increase Perceived Value
***************************************
As price is perceived by consumers as an indicator of quality, managing customer perception is key when a firm raises or lowers its prices. Instead of engaging in cost-cutting and price wars, it is smarter to create the right image, reduce perceived cost and increase perceived value to support the right image that supports the price you want to charge. Reaction from competitors or even the government must be anticipated.

Dr DP