Pricing

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Price is the process by which a business sets prices to sell its products and services, and can be part of a business marketing plan. In setting a price, a business will take into account the price at which it can acquire goods, production costs, markets, competition, market conditions, brands, and product quality.

Pricing is a fundamental aspect of financial modeling and is one of the four Pss of the marketing mix. (The other three aspects are product, promotion, and place.) Price is the only income generating element among the four Ps, the rest is the cost center. However, other marketing Ps will contribute to a decrease in price elasticity and allow price increases to drive greater revenue and profit.

Pricing can be either a manual or automated process of applying a price for a purchase and sale order, based on factors such as: fixed amount, quantity quantity, promotion or sales campaign, vendor specific offer, price applicable on the date of entry, delivery or invoice, from multiple orders or lines, and many others. Automated systems require more setup and maintenance, but can prevent pricing errors. Consumer needs can be turned into demand only if the consumer has the will and the capacity to purchase the product. Thus, pricing is the most important concept in marketing, it is used as a tactical decision in response to comparable market situations.

Video Pricing

Destination pricing

The purpose of pricing should consider:

• the company's financial goals (ie profitability)
• in accordance with the market reality (will the customer buy at that price?)
• the extent to which prices support product market positioning and are consistent with other variables in the marketing mix
• price consistency across categories and products (consistency demonstrates reliability and supports customer trust and customer satisfaction)

Prices are influenced by the type of distribution channel used, the type of promotion used, and the quality of the product. If manufacturing is expensive, distribution is exclusive, and products are supported by extensive advertising and promotional campaigns, then prices tend to be higher. Price can act as a substitute for product quality, effective promotion, or an energetic sales effort by a distributor in a particular market.

From a marketer's point of view, the efficient price is a price that is very close to the maximum that a customer is ready to pay. In economic terms, this is the price that shifts most of the consumer's economic surplus to the producer. A good pricing strategy will be one that can balance between the base price (the price under which the organization ends in losses) and the price limit (the price at which the organization experiences a situation without demand).

Maps Pricing

Pricing strategy

Marketers develop an overall pricing strategy that is consistent with the mission and value of the organization. This pricing strategy usually becomes part of the company's overall long-term strategic plan. This strategy is designed to provide extensive guidance to pricing and ensure that pricing strategies are consistent with other elements of the marketing plan. While actual prices of goods or services may vary in response to different conditions, the broad approach to pricing (ie, pricing strategies) remains constant for a planning prospecting period that is typically 3-5 years old, but in some industries may be a longer period of time 7-10 years.

In general, there are six approaches to pricing strategies mentioned in the marketing literature:

Operational-oriented prices : where the goal is to optimize productive capacity, to achieve operational efficiency or to match supply and demand through varying prices. In some cases, the price may be set to de-market.

Cost-oriented pricing: (also known as cost-oriented pricing or cost-based prices ) - in which marketers seek to maximize profits (ie, excess revenue over expenses) or simply to cover costs and break even. For example, dynamic pricing (also known as yield management is a revenue-oriented pricing form.

Customer-oriented : where the goal is to maximize the number of subscribers; encourage cross selling opportunities or to recognize different levels in the customer's ability to pay.

Pricing based on value : (also known as image-based price ) occurs when a company uses a price to mark the market value or its peer price by position the desired value in the buyer's mind. The goal of value-based pricing is to strengthen the overall positioning strategy, e.g. premium price posture to pursue or maintain a luxurious image.

Price-oriented relationships : where marketers set prices to build or maintain relationships with existing or prospective customers.

Social-oriented prices : If the goal is to encourage or prevent certain social behaviors and behaviors. such as high rates of tobacco to prevent smoking.

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Pricing tactics

When decision makers have determined a broad approach to pricing (ie, pricing strategies), they turn their attention to pricing tactics. The tactical price decision is a short-term price, designed to achieve certain short-term goals. The tactical approach to pricing can vary over time, depending on internal considerations (eg the need to remove surplus inventory) or external factors (eg response to competitive pricing tactics). Thus, a number of different pricing tactics may be used during a single planning period or in one year. Typically line managers are given the flexibility necessary to change individual prices on the condition that they operate in a broad strategic approach. For example, some premium brands never offer discounts because the use of low prices can tarnish the brand image. Instead of discounting, premium brands are more likely to offer customer value through price bundling or give-aways.

When setting individual prices, decision makers require a strong understanding of the price economy, particularly breakeven analysis, as well as an appreciation of the psychological aspects of consumer decision making including reservation prices, ceiling prices and lowest prices. The marketing literature identifies hundreds of pricing tactics. It is difficult to do justice to the widely used tactics. Rao and Kartono conducted cross-cultural studies to identify the most widely used pricing strategies and tactics. The following list is largely based on their work.

Price ARC/PRC

Traditional tactics used in outsourcing that use fixed costs for fixed service volumes, with variations in costs for volumes above or below the target threshold. The cost for additional resources ("ARC's") is above the price threshold with a price to reflect the marginal cost of additional production plus a reasonable profit. Credit ("PRC") awarded for the reduction of resources consumed or provided offers convenience for enterprise customers, but savings on credit tend not to be equivalent to increased costs when paying additional resources that exceed the threshold.

Complementary Price

Complementary prices are a collective term used to describe 'captive-market' pricing tactics. This refers to a method in which one of two or more complementary products (deskjet printers, for example) is priced to maximize sales volume, while the supplement product (printer ink cartridge) is priced at a much higher level to cover the deficiencies supported by the first product.

Contingency Price

The contingency price describes the process in which a fee is charged only depending on a particular result. Contingency rates are widely used in professional services such as legal services and consulting services. In the United Kingdom, contingency fees are known as conditional charges.

Differential pricing

The price differential is also known as the flexible price , some price or price discrimination is where different prices depend on the provider's assessment of the customer's desire or ability pay. There are different forms of price differences including: customer type, order quantity, delivery time, payment terms, etc.

Discrete price

Discrete Price occurs when the price is set at the rate that the price comes within the competence of the decision-making unit (DMU). This pricing method is often used in the context of B2B where the purchasing officer may be authorized to make purchases up to a predetermined level, beyond which the decision must be submitted to the committee for authorization.

Discount price

The discounted price is where the marketer or retailer is offering a cheaper price. Discounts in different forms - e.g. quantity rebates, loyalty rebates, seasonal discounts, periodic or random discounts, etc.

Redirect price

Diversionary Pricing is a variation of lead loss that is widely used in services; a low price is charged on a basic service with an extra replacement purpose; can also refer to low prices on some parts of the service to develop low price imagery.

Daily low price (EDLP)

Daily low prices refer to the practice of maintaining low-price low regular prices - where consumers are not forced to wait for discounts or special offers. This method is used by supermarkets.

Exit cost

Outgoing Cost refers to fees charged to customers who leave the service process before natural settlement. The purpose of outgoing costs is to prevent premature discharge. Outgoing fees often range from financial services, telecommunication services, and elderly care facilities. Regulatory authorities, worldwide, often express their dissatisfaction with outsourcing practices because they have the potential to become anti-competitive and limit the ability of consumers to switch freely, but the practice has not been banned.

Experience price curve

Curve price determination occurs when the manufacturer sets the price of a product or service at a low level to obtain volume and in the expectation that the cost of production will decrease with the acquisition of the manufacturing experience. This approach, which is often used in pricing of high-tech products and services, is based on the insight that producers learn to cut production costs over time in a phenomenon known as the effects of experience.

Geographic pricing

See also Big Mac Index

Geographic pricing occurs when different prices are charged in different geographic markets for identical products. For example, publishers often make textbooks available at lower prices in Asian countries because average wages tend to be lower with implications for the ability of customers to pay.

Guaranteed price

The price guaranteed is a variant of the price contingency. This refers to a practice including a business or a promise that a particular outcome or outcome will be achieved. For example, some business consultants do to increase productivity or profitability by 10%. If the result is not achieved, the client does not pay for the service.

Low pricing

Low pricing refers to the practice of offering high priced items for a certain period of time, followed by offering the same item at a low price for a given time. This practice is widely used by chain stores that sell household appliances. The main disadvantage of low-tack tactics is that consumers tend to become aware of the price cycle and their purchase time coincides with the low price cycle.

Honeymoon Determination

Honeymoon prices refer to the practice of using low introductory prices with subsequent price increases after the relationship is established. The purpose of honeymoon pricing is to "lock" customers into long-term associations with vendors. This approach is widely used in situations where the cost of switching customers is relatively high as home loans and financial investments. It is also common in categories where subscription models are used, especially if these are combined with automatic regular payments, such as newspaper and magazine subscriptions, cable TV, broadband and cell phone subscriptions and in utilities and insurance.

Leaders loss

A loss leader is a product that has a price set below the operating margin. Loss leadering is widely used in supermarkets and retail outlets at affordable prices where stores as a means of generating store traffic. Low prices are widely promoted and stores are ready to take small losses on individual goods, in the hope that it will cover that loss when customers buy margin items at other higher higher prices. In the service industry, the termination of losses may refer to the practice of filling the reduced price on the first order as an inducement and with the anticipation of charging a higher price on subsequent orders.

Offset pricing

Offset pricing (also known as price redirection ) is the service industry's lead loss equivalent. The service may set the price of one bid component at a very low price in the hope that it can cover any loss with cross selling additional services. For example, carpet carpet cleaning services may charge a very low basic price for the first three rooms, but charge higher rates for additional rooms, furniture, and curtain cleaning. Operators may also try to cross-sell clients on additional services such as spot cleaning products, or stain-proof treatments for fabrics and rugs.

Parity pricing

Parity pricing refers to the pricing process of a product at or near a competitor's price in order to remain competitive.

Merger price

Price bundling (also known as product bundling) occurs where two or more products or services are priced as packages at a single price. There are several types of bundles: pure bundles where items can only be purchased as packages or mixed bundles where items can be purchased separately or as packages. The bundle price is usually less than when two items are purchased separately.

Peak and off-peak pricing

Peak and off-peak pricing is a form of price discrimination where price variations are caused by several types of seasonal factors. The purpose of peak and off peak pricing is to use the price to flatten the peaks and troughs required. Peak and off-peak pricing is widely used in tourism, travel and also in utilities such as electricity providers. Peak pricing has captured the public's imagination since the travel-sharing service provider, Uber, started using surge pricing and has attempted to patent technology that supports this approach.

Price discrimination

Price discrimination is also known as variable price or differential price .

Price layer

Price layer is the use of a limited number of prices for all products offered by a business. The price layer is a tradition that begins in the old five stores and dimes, all of which cost 5 or 10 cents. In the price layer, prices remain constant but the quality or level of the product or service is adjusted to reflect changes in costs. The rationale behind this tactic is that this amount is seen as an appropriate price point for a wide range of products by potential customers. It has the advantage of ease of administration, but the disadvantage of inflexibility, especially at the time of inflation or unstable prices. The pricing layer continues to be used extensively in department stores where customers often record clothing or accessory shelves at prices at a specified price point eg separate shelves from male bonds, where each rack is priced at $ 10, $ 20 and $ 40.

Price penetration

Price penetration is an approach that can be considered when entering the market. In this approach, the price of a product is initially set low in an attempt to penetrate the market quickly. Low prices and low margins also act as a barrier, preventing potential competitors entering the market as they have to weaken the low margins to gain a foothold.

Prestige pricing

Prestige pricing also known as premium price and sometimes high price or high price maintenance refers to a deliberate high price pursuit to create a quality image

Price tagging

Price signaling is where prices are used as an indicator of some other attributes. For example, some travel resorts promote that when two adults make reservations, the children stay free. This pricing type is designed to signal that the resort is a family-friendly operation.

Skimming price

The skimming price, also known as skim-the-cream pricing is a tactic that can be considered when entering the market. The goal is to charge relatively high prices to cover product development costs early in the life cycle and before competitors enter the market.

Promotional pricing

Promotional pricing is a temporary measure that involves pricing at a lower rate than is usually charged for goods or services. Promotional pricing is sometimes a reaction to unforeseen circumstances, such as when a decrease in demand leaves the company with excess stock; or when competitive activity makes a breakthrough into market share or profit.

Two-part pricing

The two-part price is a variant of the captive market price used in the service industry. Two part prices break the actual price into two parts; fixed service cost plus variable consumption rate. The two-part price tactics are used extensively by utility companies such as electricity, gas and water and services where there is a quasi-membership type relationship, the credit card on which the annual fee is charged and the amusement park where the entrance fee is charged for admission while the customer pays for the ride and extra. One part of the price represents a membership fee or join fee, while the second part represents the component of use.

Psychological pricing

Psychological pricing is a variety of tactics designed to have a positive psychological impact. The price tags using terminal digits "9", ($ 9.99, $ 19.99 or $ 199.99) can be used to mark the price of points and bring in goods at just below the customer's order price. Psychological prices are widely used in a variety of retail settings.

Premium price

Premium price (also called prestige price) is a consistent pricing strategy at, or near, the highest price of a possible price range to help attract status-conscious consumers. The high price of premium products is used to enhance and reinforce the luxurious image of a product. Examples of companies that participate in premium prices on the market include Rolex and Bentley. As well as brands, product attributes such as eco-labeling and provenance (eg 'certified organic' and 'product of Australia') can add value to consumers and attract premium prices. Components of such premiums may reflect increased production costs. People will buy products at a premium price because:

• They believe the high price is a good quality indication
• They believe it to be a sign of self-esteem - "They're worth it;" it authenticates the success and status of the buyer; it is a sign to others that the owner is a member of an exclusive group
• They require perfect performance in this app - The cost of product damage is too high to buy anything but the best - for example, a pacemaker.

The old relationship of luxury only to kings and queens of the world hardly exists in the world today. People generally become richer, therefore the mass marketing phenomenon of luxury is only a part of everyday life, and is no longer reserved for the elite. Because consumers have a larger source of disposable income, they now have the power to buy products that meet their aspiration needs. This phenomenon allows the opportunity of premium prices for marketers in the luxury market. Luxurification in society can be seen when members of middle-class society are willing to pay premium prices for services or products of the highest quality when compared with similar items. This example can be seen with items such as clothing and electronics. Charging premium prices for products also makes it more difficult to access and helps gain exclusive appeal. Luxury brands like Louis Vuitton and Gucci are more than clothing and a status symbol. (Yeoman, 2011).

Prestige goods are usually sold by companies that have a monopoly on the market and have a competitive advantage. Because companies have great market power, they can charge a premium for goods, and can spend larger amounts on promotions and advertising. According to Han, Nunes and Dreze (2015) figure on "signal preferences and taxonomy based on wealth and necessity for status" two social groups known as "Parvenus" and "Poseurs" are individuals who are generally more self-conscious, and the basic purchase on should reach a higher status or a social prestige score. Further market research shows the role of ownership in the lives of consumers and how people make assumptions about others only by virtue of their property. People connect high priced goods successfully. (Han et al., 2010). Marketers understand this concept, and set the price of premium goods to create the illusion of exclusivity and high quality. Consumers tend to buy products at higher prices than similar products because they crave status, and feel superiority as part of a minority that can actually buy the product. (Han et al., 2010).

Price premiums can also be charged to consumers when buying products labeled environmentally friendly. Market-based incentives are provided to encourage people to practice their business in an environmentally sound way. Associations such as the MSC fishery certification program and the seafood ecolabel reward those who practice sustainable fishing. Pressure from environmental groups has led to the implementation of such associations, rather than demanding consumers. The consumer value advantage of purchasing environmentally-conscious products can create premium prices compared to environmentally-friendly non-labeled products. This means that producers have some sort of incentive to supply decent items for standard ecolabeling. Usually more costs occur when practicing a sustainable business, and charging a premium is the way businesses can recover additional costs.

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Pricing method

Prices are on request

Demand-based prices , also known as dynamic pricing, is a pricing method that uses consumer demand - based on perceived value - as a central element. These include price bubbles, price discrimination and yield management, price points, psychological prices, bundle prices, penetration pricing, pricing, value-based pricing, geo prices, and premium prices.

The price factor is the cost of production, market, competition, market conditions, product quality.

Price modeling using econometric techniques can help measure price elasticity, and computer-based modeling tools will often facilitate different price simulations and outcomes on sales and profits. More advanced tools help to set pricing at the SKU level across the product portfolio. Resellers will optimize the price of their private label SKUs with the National brand.

An example of a demand-based pricing is the use of Uber's automobile service from an automated algorithm to raise prices to "price levels", respond quickly to changes in supply and demand in the market. By responding in realtime, the balance between demand and supply of drivers can be approached. The customer receives notice when making a Uber reservation that the price has increased. The company applied for a US patent at a surge price in 2013, although the airline is known to have used a similar technique in seat pricing over the years.

This practice often causes passengers to become angry and invite criticism when it happens as a result of vacations, bad weather, natural disasters or other factors. During New Year's Eve 2011, Uber's price is as high as seven times the normal rate, causing anger. During the crisis of the Sydney hostage in 2014, Uber imposed a surge pricing, which resulted in up to four times the normal cost; while it maintains the price of the spike at first, then apologizes and refunds the additional cost. Uber CEO Travis Kalanick responded to the criticism by saying: "... because it's so new, it will take time for people to take it in. There's 70 years of conditioning around the fixed price of a taxi."

Multidimensional pricing

Multi-dimensional price is the price of a product or service that uses multiple numbers. In this practice, the price no longer consists of a single amount of money (eg, car sticker price), but consists of various dimensions (e.g., Monthly payment, payment amount, and down payment). Research has shown that this practice can significantly affect the ability of consumers to understand and process pricing information.

Micromarketing

Micromarketing is the practice of customizing products, brands (microbrands), and promotions to meet the needs and wants of micro in the market. This is a type of market adjustment that deals with the combination of customer/product prices at the store or individual level.

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Theoretical considerations in pricing

Price/quality relationship

price/quality relationship consists of consumer perceptions of value. High prices are often regarded as a sign of quality, especially when a product or service does not have search quality that can be checked before it is purchased. Understanding consumer perceptions of price/quality relationships is of utmost importance in the case of complex products that are difficult to test, and experiential products that can not be tested to use (like most services). The greater the uncertainty surrounding the product, the more consumers rely on the price/quality signal and the higher the premium they may set up to pay.

Consumers can have different perceptions at a premium price, and these factors make it important for marketers to understand consumer behavior. According to the figure of Vigneron and Johnson on "Consumer Behavior Finding Achievement", Consumers can be categorized into four groups. These groups are; Hedonis & amp; Perfectionist, arrogant, bandwagon and veblenian. These categories rank from the level of self-awareness, for the importance of price as a prestige indicator. Veblen Effect explains how these consumer groups make purchasing decisions based on striking values, as they tend to buy luxury products that are consumed publicly. This shows that they tend to make purchases to show strength, status, and wealth. Consumers included in the "Snob Effect" can be described as individuals who are looking for perceived unique value, and will buy exclusive products to be the first or very few who have them. They will also avoid purchasing products consumed by the general mass of people, as it is assumed that goods in limited inventory have a higher value than those items that are not. (Vigneron & Johnson, 1999). The bandwagon effect explains that consumers who fall into this category make purchasing decisions for entry into social groups, and derive the perceived social value of purchasing popular products in such social groups at a premium price. Research shows that people will often adjust to what the majority of their group members when it comes to the attitude of a product. Paying a premium for a product can act as a way to gain acceptance, due to the pressure given to them by their peers. Hedonic effects can be described as a specific group of people whose purchasing decisions are not affected by the status and exclusivity that are acquired by purchasing products at a premium price, nor are they vulnerable to the fear of abandonment and peer pressure. Consumers who fall into this category base their purchasing decisions on emotional value perceived, and gain unreal benefits such as sensory pleasures, aesthetic beauty and joy. Consumers of this type have a higher interest in their own welfare. (Vigneron & Johnson, 1999). The last category in the figure of Vigneron and Johnson on "Consumer Behavior Finding Achievement" is the effect of perfectionism. Prestige brands are expected to show high quality, and this is the highest quality assurance that can really increase the value of the product. According to this effect, those who enter this group appreciate prestige brands to have superior quality and higher performance than other similar brands. Research has shown that consumers perceive the quality of a product to be relational at its price. Consumers often believe that high product prices indicate a higher level of quality.

Although it is recommended that high prices seem to make certain products more desirable, consumers falling within this category have their own perceptions of quality and make decisions based on their own judgments. They can also use the premium price as an indicator of product quality level.

Price sensitivity and consumer psychology

In their book Price and Price Strategy Thomas Nagle and Reed Holden outline nine laws or factors that influence how consumers perceive the price given and how sensitive their pride is by honoring different purchasing decisions:

• The influence of reference prices : The buyer price sensitivity for a particular product increases the price of the product higher relative to the perceived alternative. The perceived alternatives may vary by buyer segment, by chance, and other factors.
• Tough comparison effects Buyers are less sensitive to known/more reputable product prices when they are having trouble comparing them with potential alternatives.
• Override cost effects : The higher the product-specific investment that the buyer must make to divert the supplier, the less the buyer's sensitive price when choosing between alternatives.
• Price quality effect : Buyers are less price sensitive, higher higher prices. Products with highly relevant effects include: image products, exclusive products, and products with minimum gestures for quality.
• Expenditure effect : Buyers are more price-sensitive when account fees for a large percentage of revenue or budget are available to buyers.
• End-benefit effects : The effect refers to a given purchase relationship for greater overall benefit, and is divided into two parts:

  Request Request : The more buyers who are sensitive to the final benefit price, the more sensitive they are to the price of the products that contribute to those benefits.

  Cost of price proportion : The cost of the proportion of the price refers to the percent of the total final allowance cost recorded by a particular component that helps generate the final benefit (eg, think CPU and PC)). The smaller the division of the given component of the total cost of the final profit, the less sensitive buyer will be the component price.

• Shared cost effects : The smaller the purchaser price of the purchase price has to pay for itself, the less the sensitive price.
• Fairness Effects : Buyers are more sensitive to the price of a product when prices are outside the range they deem "fair" or "fair" because of the purchase context.
• Framing effects : Buyers are more price sensitive when they consider prices to be a loss than a lost profit, and they have a higher price sensitivity when prices are paid separately rather than as part of a bundle.

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Approach

Pricing is the most effective profit lever. Price can be approached on three levels: industry, market, and transaction level.

• Price-setting at the industry level focuses on the overall industrial economy, including changes in supplier prices and changes in customer demand.
• Market-level pricing focuses on competitive pricing positions compared to different product values ​​with competing competitors' products.
• Price-level pricing focuses on managing the implementation of discounts away from references, or price lists, that occur either inside or outside of invoices or receipts.

The "waterfall price" analysis helps businesses and salespeople to understand the difference that arises between the reference price or the list, the sales price billed, and the actual price paid by the customer by taking into account contracts, sales, and payment discounts.

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Price errors

Many companies make common pricing mistakes. Jerry Bernstein's Article Use Supplier Price Error describes some sales errors, which include:

• Weak controls when discounting (price change)
• Insufficient system to track competitors' selling price and market share (Competitive Intelligence)
• Plus cost price
• Price improves poor execution
• Worldwide price inconsistencies
• Paying sales representatives for sales vol. addition of revenue size

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See also

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References

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External links and further reading

• William Poundstone, Priceless: The Myth of Fair Value (and How to Take Advantage), Hill and Wang, 2010
• New Product Success Engineering: New Product Price Pricing Process at Emerson Electric. A case study by Jerry Bernstein and David Macias. Issued in Industrial Marketing Management .
• How to Pricing and Selling Your Software Product, Redpoint Ventures

Source of the article : Wikipedia