Price!!
Price is an often overlooked marketing strategy, as many tend to focus on promotions or advertising.
Pricing strategies, however, can have a large impact on sales and (more importantly) profit.
For clarification purposes, I am defining price as what your customer pays and/or what the end
consumer pays for a product or service. In the case of products not sold directly to the end user,
pricing is often described as “wholesale” and “retail.” When the distribution channel is long (such as
when there is a manufacturer, broker/distributor, retailer, and end consumer), multiple mark-ups can
occur between the wholesale and the retail price.
Your optimal pricing strategy will depend on more than your costs. Forces within your business
environment such as your competitors, your suppliers, the availability of substitute products, and your
customers come into play as well. Positioning (how you want to be perceived by your target audience)
is also a consideration.
Pricing Strategies
There are a variety of pricing strategies in existence. Each strategy is used in a different set of
circumstances. Some of the things to consider when choosing the best strategy for your situation are
your costs; both short term and long term sales and profit goals; competitors’ activities; and customer
lifetime value. While there are others, a few of the more popular pricing strategies to consider are:
Cost plus pricing. Here, you decide the profit you need to make as a dollar amount before setting the
price. Figure out your costs and your selling price is simply your costs plus your pre-determined profit
number. This approach helps keep your profitability top-of-mind, but may also result in prices that are
out-of-line with customer expectations and worth of your product or service.
If a product costs $100 to make and you want a $50 profit, what would be the selling price for
the product? ________________
Markup Pricing. Similar to cost plus pricing, with markup pricing, you determine the percentage of
profit you want to receive before determining the selling price.
If the product cost $50 to make and you want a 50% markup or profit, what would be the
selling price for the product? _________________
Demand Orientated Pricing. Marketers attempt to determine what consumers will be willing to
spend on a product or service. Cost is not really relevant because price is set in relation to the
perceived value of the product/service. This can be tricky…research is vital
What is the maximum amount you would pay for a Bears Superbowl ticket? $__________
Product Line Pricing. Where there is a range of product or services the pricing reflect the benefits of
parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole
package $6.
What would be another example of price lining? _____________________________
Promotional Pricing. Pricing to promote a product is a very common application. There are many
examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).
What would be another example of promotional pricing? ___________________________
Customary Pricing. The idea that tradition drives the price as customers expect certain prices for
certain products. Companies don’t want customer to look for substitutes, for example choosing a
baseball game over a football game.
What are some products you feel should or do fall under customary pricing? ___________
________________________________________________________________________
Competitive pricing. Pricing that looks at the prices different competitors are charging and use those
prices as a benchmark when pricing their own products.
What is a highly competitive industry where you may see competitive based pricing?
____________________________________________________________________
Psychological Pricing. This approach is used when the marketer wants the consumer to respond on
an emotional, rather than rational basis.
What would be an example of psychological pricing? $_____________
Price skimming. This technique is used when you offer a unique or scarce product with few or no
substitutes. The price is set high, resulting in high margins for the seller. Buyers are those that are
willing to pay the price because of the product’s prestige and/or uniqueness. In the case of a scarce but
necessary product, customers pay the price because they have no choice. Often, price skimming is a
short-term strategy as competitors enter with their own products, bringing prices down. Before
considering this technique, be aware that if your customers feel you have taken advantage of them,
you will be building “bad will” for your business and undermining the trust customers have in your
products or services.
Have you bought or seen anything that would fall into this pricing strategy, what was it?
_______________________________________________________________________.
Penetration pricing. This is the opposite of price skimming. Prices are set low in an effort to gain
large market share. Because the penetration price does not cover costs, this is also a temporary
strategy. For this strategy to be profitable, customers must be willing to pay your normal, higher price
later on.
If penetration pricing doesn’t cover cost (meaning the product is losing money), why
would a company want to do this?___________________________________
Loss leader. Here, you price one or more products below cost to attract customers. You hope that
those customers will purchase other profitable products from you. This strategy is often implemented
as part of a short-term promotion.
Think of your own example where you think loss leader would be a good idea. ______________
Do you think this is ethical, explain? _______________________________________________
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