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)