Setting Price Using Market Pricing

Under the market pricing method cost is not the main factor driving price decisions; rather initial price is based on analysis of market research in which customer expectations are measured. The main goal is to learn what customers in an organization’s target market are likely to perceive as an acceptable price. Of course this price should also help the organization meet its marketing objectives.

Market pricing is one of the most common methods for setting price, and the one that seems most logical given marketing’s focus on satisfying customers. So if this is the most logical approach why don’t all companies follow it? The main reason is that using the market pricing approach requires a strong market research effort to measure customer reaction. For many marketers it is not feasible to spend the time and money it takes to do this right. Additionally for some products, especially new high-tech products, customers are not always knowledgeable about the product to know what an acceptable price level should be. Consequently, some marketers may forego market pricing in favor of other approaches.

For those marketers who use market pricing, options include:

  • Backward Pricing
  • Psychological Pricing
  • Price Lining
Cost Pricing: Breakeven Method
Market Pricing: Backward Method