Pricing Approaches
- Cost-plus pricing - retailers take the cost of the product for them and then add a profit to determine a price. Also known as mark-up pricing. This practice is very common. Companies should take into consideration eventual mark downs or sales on the product when figuring the mark-up amount.
- Odd-even pricing occurs when a company prices a product a few cents or a few dollars below the next dollar amount. For example, instead of $10, the price is $9.99.
- Prestige pricing occurs when a higher price is utilized to give an offering a high-quality image. The same product may be priced differently at two different stores because one store has a higher perceived image.
- Price lining or having few price levels but many products available at those levels is another strategy. Examples of products with this type of pricing are neckties and DVDs.
- Demand-backward pricing is where companies start with the price demanded by consumers and then create offerings at that price. Around the holidays, retailers will often have displays of products that all have the same price.
- Leader pricing involves pricing one or more items low to get people in the store and then buying other items.
- Sealed bid pricing is the process of offering to buy or sell products at prices designated in sealed bids.
- Online auctions allow buyers to bid and negotiate prices for posted products from sellers. Buyers can also post a "want" item called a forward auction and what they are willing to pay for it, called a reverse auction.
- Going rate pricing occurs when buyers pay the same price regardless of where they buy the product or from whom. These products are usually commodities such as wheat, gold, silver, etc.
- Price bundling occurs when different offerings are sold together at a price that's typically lower than the total price a customer would be paying by buying each offering separately. Popular examples of price bundling are value meals at fast food restaurants.
- Captive pricing is strategy firms use when consumers must buy a given product because they are at a certain event or location or they need a particular product because no substitutes will work. Concessions at sporting events or a movie are one example. Another example is razors and razor blades.
- Product mix pricing is pricing products consumers use together with different profit margins. Razors and razor blades are also an example of product mix pricing.
- Two-part pricing means there are two different charges customers pay for an offering. An example would be cell phones. There is an initial monthly charge and then additional charges if the customer exceeds a set minute allowance.
- Payment pricing is when customers are allowed to spread out the purchase price over several payments, usually on a credit card.
- Price discrimination is where certain groups of customers are charged different prices than others.
- Promotional pricing is a short-term tactic designed to get people into a store or to purchase more of a product. Sales are examples of this type of pricing approach.
Price Adjustments
Organizations have to decide what policies they will have with regard to changing the listed prices for their products, known as making price adjustments. Common price adjustments include:
- Quantity discounts.
- Shipping discounts and risk of loss.
- Uniform-delivered pricing, which means buyers pay same shipping charges regardless of where they are located.
- Reciprocal agreements are agreements where merchants agree to promote each other to customers by offering discounts.
- Bounceback promotions are where retailers give customers coupons, rebates, etc to use on their next purchases.
