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The Pricing Introduction

August 7, 2009

Pricing:

The effective pricing is the price the company receives after accounting for discounts, promotions, and other incentives. In other words, one of the four major elements of the marketing mix is price

The following are the four major elements of marketing,

1.      Product

2.      Price

3.      Place

4.      Promotion

So, Pricing is an important strategic issue because it is related to product positioning. Furthermore, pricing affects other marketing mix elements such as product features, channel decisions, and promotion.

The following is a general sequence of steps that might be followed for developing the pricing of a new product / work

1.      Develop marketing strategy – perform marketing analysis, segmentation, targeting, and positioning.

2.      Make marketing mix decisions – define the product, distribution, and promotional tactics.

3.      Estimate the demand curve – understand how quantity demanded varies with price.

4.      Calculate cost – include fixed and variable costs associated with the product.

5.      Understand environmental factors – evaluate likely competitor actions, understand legal constraints, etc.

6.      Set pricing objectives – for example, profit maximization, revenue maximization, or price stabilization (status quo).

7.      Determine pricing – using information collected in the above steps, select a pricing method, develop the pricing structure, and define discounts.

These steps are interrelated and are not necessarily performed in the above order. The above list serves to present a starting framework.

When a product is going to the pricing some decisions followed, example decision below

>> Pricing strategy (skim, penetration, etc.)

>> Suggested retail price

>> Volume discounts and wholesale pricing

>> Cash and early payment discounts

>> Seasonal pricing

>> Bundling

>> Price flexibility

>> Price discrimination

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