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, auction and bid 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

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: Hearst Autos Research. “Car MSRP vs. Invoice: Everything You Need to Know.” Car and Driver Magazine, April 22, 2020.
  2. There are several free online tools for calculating break-even 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: Sandeep Heda, Stephen Mewborn, and Stephen Caine. “How Customers Perceive a Price Is as Important as the Price Itself.” Harvard Business Review, January 03, 2017.
  4. The coronavirus pandemic and subsequent economic slowdown significantly affected timely payments with many companies stretching payments well beyond the stated payment terms. It was particularly difficult for retailers as explained here: Kristin Broughton. “Cash Crunch at Retailers Stings Suppliers During Pandemic.” The Wall Street Journal, July 15, 2020.
  5. For an example see: Unfair Sales Act. State of Wisconsin.
  6. For more on Uber’s pricing see: “How Surge Pricing Works.” Uber.
  7. For details on Amazon’s pricing see: Grace Baldwin. “An Introduction to Amazon Pricing in 2020.” Omnia Retail, March 9, 2020.
  8. For more information on other methods of payment for international trade see: “Methods of Payment.”
  9. For more information on contactless payments see: Julia Kagan. “Contactless Payments.” Investopedia, May 29, 2020.
  10. During the coronavirus pandemic many buyers around the world preferred to use contactless payment to make purchases. Some industry experts believe this could be the catalyst for expanded use. For more see: Philip Bruno, Olivier Denecker and Marc Niederkorn. “Accelerating Winds of Change in Global Payments.” McKinsey & Company, October 1, 2020.