Pricing Decisions Tutorial

What do the following words have in common? Fare, dues, tuition, interest, rent, and fee. The answer is that each of these is a term used to describe what one must pay to acquire benefits from another party. More commonly, most people simply use the word price to indicate what it costs to acquire a product.

The pricing decision is a critical one for most marketers, yet the amount of attention given to this key area is often much less than is given to other marketing decisions. One reason for the lack of attention is that many believe price setting is a mechanical process requiring the marketer to utilize financial tools, such as spreadsheets, to build their case for setting price levels. While financial tools are widely used to assist in setting price, marketers must consider many other factors when arriving at the price for which their product will sell.

In this part of our highly detailed Principles of Marketing Tutorials, we begin a two-part discussion of the fourth marketing mix variable – price. For some marketers, more time is spent agonizing over price than any other marketing decision. In this tutorial we look at why price is important and what factors influence the pricing decision.

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