Pricing - Questions Involved in Pricing

Questions Involved in Pricing

Pricing involves asking questions like:

  • How much to charge for a product or service? This question is a typical starting point for discussions about pricing, however, a better question for a vendor to ask is - How much do customers value the products, services, and other intangibles that the vendor provides.
  • What are the pricing objectives?
  • Do we use profit maximization pricing?
  • How to set the price?: (fixed pricing, cost-plus pricing, demand-based or value-based pricing, rate of return pricing, or competitor indexing)
  • Should there be a single price or multiple pricing?
  • Should prices change in various geographical areas, referred to as zone pricing?
  • Should there be quantity discounts?
  • What prices are competitors charging?
  • Do you use a price skimming strategy or a penetration pricing strategy?
  • What image do you want the price to convey?
  • Do you use psychological pricing?
  • How important are customer price sensitivity (e.g. "sticker shock") and elasticity issues?
  • Can real-time pricing be used?
  • Is price discrimination or yield management appropriate?
  • Are there legal restrictions on retail price maintenance, price collusion, or price discrimination?
  • Do price points already exist for the product category?
  • How flexible can we be in pricing? : The more competitive the industry, the less flexibility we have.
    • The price floor is determined by production factors like costs (often only variable costs are taken into account), economies of scale, marginal cost, and degree of operating leverage
    • The price ceiling is determined by demand factors like price elasticity and price points
  • Are there transfer pricing considerations?
  • What is the chance of getting involved in a price war?
  • How visible should the price be? - Should the price be neutral? (i.e.: not an important differentiating factor), should it be highly visible? (to help promote a low priced economy product, or to reinforce the prestige image of a quality product), or should it be hidden? (so as to allow marketers to generate interest in the product unhindered by price considerations).
  • Are there joint product pricing considerations?
  • What are the non-price costs of purchasing the product? (e.g.: travel time to the store, wait time in the store, disagreeable elements associated with the product purchase - dentist -> pain, fishmarket -> smells)
  • What sort of payments should be accepted? (cash, check, credit card, barter)

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