Setting Price: Part 1 Tutorial

In the Pricing Decisions Tutorial, we provided the foundation marketers use to make pricing decisions. We now turn our attention to the methods marketers use to determine the price they will charge for their products. The central point of theses tutorials is a five-step process for setting price. We want to emphasize that while the process serves as a useful guide for making price decisions, not all marketers follow this step-by-step approach. Additionally, it is important to understand that finding the right price is often a trial-and-error exercise, where continual testing is needed.

Like all other marketing decisions, market research is critical to determining the optimal selling price. Consequently, the process laid out here is intended to open the marketer’s eyes to the options to consider when setting price and is in no way presented as a guide for setting the “perfect” price.

In Part 1, we look at steps 1 and 2 with our primary emphasis on the approaches to setting an initial price. We will continue our price discussion in the Setting Price: Part 2 Tutorial with steps 3, 4 and 5 that focus on adjustments to the initial price and payment options.

It is also important to understand that, just like many other marketing areas, technology serves a key role in pricing. For example, companies in such industries as retailing, travel, and insurance have turned to computerized methods for helping set the right price. In particular, marketers are using price optimization software, that is built using advanced mathematical modeling. These software programs take into consideration many of the internal and external pricing factors discussed in the Pricing Decision Tutorial along with other variables, such as sales history, in order to arrive at an ideal price. Marketers should know that much of what is discussed in Part 1 and Part 2 are also essential elements of these price setting programs.