BUSI 520
Chapter Sixteen: Developing Pricing Strategies and Programs
Understanding Pricing
Throughout most of history, prices were set by negotiating between buyers and sellers
Setting one price for all buyers is a relatively modern idea that arose with the
development of large-scale retailing at the end of the nineteenth century
Pricing In A Digital Age
Traditionally, price has operated as a major determinant of buyer choice
oConsumers and purchasing agents who have access to price information and price
discounters put pressure on retailers to lower their prices
oRetailers in turn put pressure on manufacturers to lower their prices
oThe result can be a marketplace characterized by heavy discounting and sales
promotions
The Internet has changed the way buyers and sellers interact
oBuyers can:
Get instant price comparisons from thousands of vendors
Check prices at the point of purchase
Name their price and have it met
Get products free
oSellers can:
Monitor customer behavior and tailor offers to individuals
Give certain customers access to special prices
oBoth buyers and sellers can:
Negotiate prices in online auctions and exchanges or even in person
A Changing Price Environment
Pricing practices have changed due to:
oThe recession in 2008-2009
oA slow recovery
oRapid technological advances
Some say new behaviors are create a in which consumers hsare bikes,sharing economy
cars, clothes, couches, apartments, tools, and skills and extracting more value from what
they already own
Trust and a good reputation are crucial in any exchange, but imperative in a sharing
economy
oMost platforms that are part of a sharing-related business have some form of self-
policing mechanism such as public profiles and community rating systems
Bartering
oBartering, one of the oldest ways of acquiring goods, is making a comeback
through transactions estimated to total $12 billion annually in the United States
oExperts advise using barter only for goods and services that someone would be
willing to pay for anyway
Renting
oThe sector of the new sharing economy that is really exploding is rentals
oRentTheRunway
oAirbnb
How Companies Price
In small companies, the boss often sets prices
In large companies, division and product line managers do
oEven here, top management sets general pricing objectives and policies and often
approves lower management’s proposals
Where pricing is a key competitive factor, companies often establish a pricing department
to set or assist others in setting appropriate prices
oThis department reports to the:
Marketing Department
Finance Department
Accountants
