Chapter 18: Setting Price

Chapter Summary:

In this chapter, our primary emphasis is to look at pricing as a five-step process.  The process takes into consideration many different decisions before the marketer arrives at a final selling price.  We will examine this process by first assessing how price fits into the organization’s overall marketing objectives.  Next, we look at several approaches for setting the initial product price.  For many marketers, the initial price is not the final price and adjustments must be made.  In the next step, we consider situations where marketers must make changes to their initial price and the various methods that are available for doing this.  We conclude the five-step process by looking at payment options marketers can choose when selling their product.  We complete the discussion of pricing by examining two additional methods, bid and auction pricing, and see how these fit within pricing strategy.

Key Issues:

  • Steps in the Price Setting Process
  • Step 1: Examine Objectives
  • Step 2: Determine an Initial Price
  • Step 3: Set Standard Price Adjustments
  • Step 4: Determine Promotional Pricing
  • Step 5: State Payment Options
  • Other Pricing Methods

Links to Cited References:

  1. Automobile dealers routinely quote a vehicle’s MSRP in their advertisements, though only in cases where a vehicle is in extremely high demand does anyone pay this amount.  Instead, dealers set their final price based on other factors as explained here:  “Guide to Car Pricing Terms.” Consumer Reports, August 1, 2017.
  2. There are several free online tools for calculating the breakeven point if fixed cost, variable cost and price can be estimated.  For one of these calculators see:  “Break-Even Calculator.” Bplans.
  3. For insight into how customers perceive prices and the impact this may have on the marketer see: Heda, Sandeep, Mewborn, Stephen, and Caine, Stephen. “How Customers Perceive a Price Is as Important as the Price Itself.” Harvard Business Review, January 03, 2017.
  4. Not only are large companies ignoring cash term dates but around the world leading companies are now dictating what their suppliers’ payment terms should be.  This can be seen with this example from Australia:  West, Michael. “Kellogg’s and Fonterra Stretch Payments to 120 Days: The Corporate Giants Putting the Big Squeeze on Small Business.” SmartCompany, August 2, 2016.
  5. For an example see: Unfair Sales Act. State of Wisconsin
  6. “How Surge Pricing Works.” Uber
  7. Kristof, Kathy. “How Amazon Uses ‘Surge Pricing,’ Just Like Uber.” CBS Moneywatch. July 24, 2017.
  8. For more information on other methods of payment for international trade see:  “Methods of Payment.” Export.gov
  9. Pandy, Susan M., and Crowe, Marianne. “Choosing a Mobile Wallet: The Consumer Perspective.” Federal Reserve Bank of Boston, March 9, 2017.