Week 4 Project
Pricing Methods and Price Determination
The economic function of price is to create possession utility. This means when consumers pay the price on a product, they gain possession of the product or the right to bene�t from its use. The foundation of pricing is to �rst recover the cost of producing a product and delivering it to the customer. Pricing also has a psychological element. Customers tend to assume a higher price indicates higher-quality products. If the products fail to provide the expected quality, customers will not buy them again. Two factors commonly affect pricing decisions. Usually, the decision to select a posted price versus a bargaining price is based on what is traditional for that product category. The second factor in developing a pricing strategy takes into account the psychological aspects of pricing. The most common pricing strategies are going-rate pricing, target-return pricing, standard markup pricing, perceived-value pricing, and value pricing. The selection of a pricing strategy depends on what is traditional in the target market.
Going-Rate Pricing -Set your price at the same level as your competitor's price/ used with products that sell in mass market.
Target-Return Pricing - Base the price on the average cost of the product plus a percentage to cover the rate of return they require for their investment /used most commonly in regulated markets.
Standard Markup Pricing - Sell at a price that is a standard percentage added to the price they pay to the manufacturers / based on tradition.
Perceived-Value Pricing - Known as prestige pricing, is based on the value of the product as perceived by the customers / mainly premium and luxury goods.
Value Pricing – Requires solid research on the target market and the need the product meets / requires knowledge of the value of the product to the target market.
Of all the elements of the marketing mix, price is the only one that allows the organization to generate immediate revenues. All the other elements—product, place, and distribution—are considered either investments or expenditures for the organization. Regardless of the nature of a product, its price and demand are closely related. The value of a product and the quantity demanded are strongly correlated. This is so because the value attached to a product in�uences the consumer's willingness to buy the product. So a consumer's perception of the value of a product is a viable predictor of the quantity of the product that will be in demand.
Additional Materials
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