Chapter 30 – Pricing Strategies
Objectives 30.1
3 Basic pricing concepts:
 Cost oriented pricing which deals with the costs of acquiring or making a product
and their expenses of doing business.
 Demand oriented pricing attempts to determine what present consumers are
willing to pay for given goods and services based on perceived value.
 Competition oriented pricing uses the pricing of their competitors to determine
the prices of their own goods of services.
Terms 30.1
 Markup – is the difference between the price of an item and its cost.
 Cost plus pricing – all costs and expenses are calculated and then the desired
profit is added to arrive at a price.
 One price policy – is one in which all customers are charged the same price for
the goods and services offered for sale.
 Flexible price policy – allows or permits customers to bargain for merchandise.
 Skimming pricing – is a policy that sets a very high price for a new product.
 Penetration pricing – is the opposite of skimming pricing in that initial price for a
new product is set very low.
Objectives 30.2
Pricing techniques fall into two basic categories: psychological pricing and discount
pricing. However, there are six (6) steps to setting pricing:
 Determine pricing objectives
 Study costs
 Estimate demands
 Study competition
 Decide on a pricing strategy
 Set Price
Terms 30.2
 Psychological pricing – refers to techniques that create an illusion for customers
or that make shopping easier for them.
 Prestige pricing – is the practice of setting higher than average prices to suggest
status and prestige to the consumer.
 Price lining – is a special pricing technique that requires a store to offer all
merchandise in a given category at certain prices.
 Discount pricing – involves the seller’s offering reductions from the usual price.
 Trade discounts – are not really discounts at all but rather the way manufacturers
quote prices to wholesalers and retailers.
 Seasonal discounts – are offered to buyers who are willing to buy in advance of
the customary buying season.