Setting Price

Other Considerations

As we have seen in this tutorial, as well as in the Pricing Decisions Tutorial, marketers must consider many factors when making a pricing decision.  We conclude our discussion of pricing by suggesting several other issues that can impact how price is set.  These include:

• Ownership Options
• Early Payment Incentives
• Currency Considerations
• Auction Pricing

Ownership Options

An important decision faced by marketers as they are formulating their marketing strategy deals with who will have ownership of the product (i.e., holds legal title) once an exchange has taken place.  The options available include:

• Buyer Owns Product Outright – The most common ownership option is for the buyer to make payment and then obtain full ownership. 
• Buyer Has Right to Use but Does Not Have Ownership – Many products, especially those labeled as services, permit customers to make payment in exchange for the right to use a product but not to own it.  This is seen in the form of usage, rental or lease payment for such goods and services as: mobile phone services, manufacturing equipment and Internet access.  It should be noted that under some lease or rental plans there may be an option for customers to buy the product outright (e.g., car lease) though this often requires a final payment.

Early Payment Incentives

For many years marketers operating primarily in the business market offered incentives to encourage their customers to pay early.  Typically, business customers are given a certain period of time, normally 30 or 60 days, before payment is due.  To encourage customers to pay earlier, and thus allow the seller to obtain the money quicker, marketers have offered early payment discounts often referred to as “cash terms”.  This discount is expressed in a form that indicates how much discount is being offered and in what timeframe.  For example, the cash terms 2/10 net 30 indicates that if the buyer makes payment within 10 days of the date of the bill then they can take a 2% discount off some or all of the items on the invoice, otherwise the full amount is due in 30 days.

While this incentive remains widely used, its effectiveness in getting customers to pay early has greatly diminished.  Instead, many customers, especially large volume buyers, simply remove the discount from the bill’s total and then pay within the required “net” timeframe (or later!).  For this reason many companies are discontinuing offering this discount.