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 Mark-up pricing Implemented by Wholesalers & retailers carefully examining all Adds a predetermined of the costs associated percentage to cost of products with carrying a product Same markup applied to all and selling it to products carried by the business consumers then adding Cost-plus pricing the desired profit to Manufacturers & service arrive at a selling price. 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: Back- to-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.
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