Tactical Decisions: Pricing

Pricing decisions can be a complicated undertaking that requires knowledge of the market, competitors, economic conditions and, of course, customers. For this section, it is not necessary to provide extensive financial evaluation of the pricing decision since most of this will take place in Part 5 Budgeting and Implementation. However, the use of tables and graphs may be helpful in showing pricing trends and pricing decisions within various categories. (Length: 1-2 pages)

  1. Brief Summary of Current Pricing Decisions
    • Describe pricing decisions by:
      • model/product
      • segment
      • channel
      • geography
      • other
    • Adjustments and Allowances
      • Discounting
      • Payment terms
  2. Identify Planned Changes
    • Summarize changes
    • Justify changes:
      • Due to results
      • Due to research
      • Due to competition
      • Other
  3. Describe Planned Changes
    • Objectives
      • e.g., return on investment, market share, profit level, price leadership, match competition, etc.
    • Factors affecting price setting
      • Cost factors
        • Fixed costs to be covered
        • Variable costs
      • Customer expectations
      • Company expectations
        • e.g., margins, ROI
      • Demand Considerations
        • market elasticity
        • position on product life cycle
      • Competition
      • Economic conditions
      • Legal/regulatory considerations
    • Pricing Options
      • list, preferred or suggest pricing
      • adjustments and allowances
      • sub-divided by:
        • product/model
        • customer
        • channel
        • other

Setting Price: Part 1 Tutorial

setting price tutorial part 1

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.

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