3.06
Develop A
Foundational
Knowledge Of
Pricing To
Understand Its Role
In Marketing
Characteristics Of Effective Pricing
 Attracts The Customer’s Attention
 Enforces The Idea Of “Value” For The Money
 Takes Into Account:
 Cost To Produce
 What Competitors Are Charging
 What Customers Are Willing To Pay
What Is Being Priced?
 The Good or Service itself
 Any additional services or warranties
 The 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:
–
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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 raincheck 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 Vs. Selling Price
–
Retail Price Is The Initial Amount That The Company
Would Like To Charge For An Item (suggested retail
price)
–
Selling Price Is The Actual Price For Which It Is Sold
To The Customer (sale 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
–
–
–
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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
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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?