Marketing Pricing

Pricing can be defined as a method used by a firm or business to set its selling price. This usually depends on the firm's average costs, and on the customer's perceived value of the product in comparison to his or her perceived value of the competing products. Different pricing methods place varying degree of emphasis on selection, estimation, and evaluation of costs, comparative analysis, and market situation. Pricing strategies are a sometimesoverlooked part of the marketing mix. They can have a large impact on profit, so should be given the same consideration as promotion and advertising strategies. A higher or lower price can dramatically change both gross margins and sales volume. This indirectly affects other expenses by reducing storage costs, for example, or creating opportunities for volume discounts with suppliers. Other factors also determine a firm' s optimal pricing strategy such as the firm' s competitors, suppliers, the availability of substitute products, and customers.

Some pricing strategies include:

Competitive pricing Using competitors' retail (or wholesale) prices as a benchmark for the firm' s own prices. Price slightly below, above or the same as its competitors, depending on its positioning strategies.

Cost plus markup This is the opposite of competitive pricing. The firm decides the profit it wants to make and adds it to its costs to determine selling price.

Loss LeaderA loss leader is an item the firm sells at or below cost in order to attract more customers, who will also buy highprofit items.

Close out This pricing technique in mind when the firm has excess inventory. Here the goal should be to minimize loss, rather than making a profit.

Membership or trade discounting This is one method of segmenting customers.

Bundling and quantity discounts Other ways to reward people for larger purchases are through quantity discounts or bundling.

Versioning Versioning is popular with services or technical products, where the firm sells the same general product in two or three configurations.