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Functions of Marketing: Pricing

Pricing involves more than just putting a sticker or tag on an item. It entails determining the point at

which both buyer and seller perceive the best value.

Objectives

By the end of this session, participants will be able to:

 Explain different pricing strategies and functions.

 Describe the role of pricing in marketing.

Pricing Concepts

A company can use a variety of methods or even a combination of methods in pricing its products,

including:

 Cost-based pricing—setting prices based on production and marketing costs, rather

than conditions in the marketplace

 Value-based pricing—setting prices based on customer perceptions of value

 Optimal pricing—a computer-based pricing method that creates a demand curve for

every product to help managers select a price that meets specific marketing objectives

 Skim pricing—charging a high price for a new product during the introductory stage

and lowering the price later

 Penetration pricing—introducing a new product at a low price in order to build sales

volume quickly

 Loss-leader pricing—setting a price on one product at a loss as a way to entice

customers to consider other products

 Auction pricing—buyers competitively bid on products being sold

 Participative pricing—allowing customers to pay the amount they think a product is

worth

 Free and freemium pricing—offering some products for free while charging for

others

After a company has established its initial price, it can also use a number of price adjustment tactics

to adjust the prices up or down over time, including:

 Discounts—temporary price reductions to stimulate sales or lower prices to encourage

certain behaviors (e.g., paying cash)

 Bundling—offering several products for a single price that is presumably lower than

the total of the products’ individual prices (e.g., Microsoft Office)

 Dynamic pricing—continually adjusting prices to reflect changes in supply and

demand (e.g.,airline seats)

Please do some web searches and identify examples of products priced each of the following ways.

You must copy & paste a link for #1-9 to document your sources to earn credit.

1. Cost-based pricing

2. Value-based pricing

3. Optimal pricing

4. Skim pricing

5. Penetration pricing

6. Loss-leader pricing

7. Auction pricing

8. Participative pricing

9. Free and freemium pricing

10. Please identify a product, price, and retailer where you would only choose to buy when the price is

discounted with any one of the 3 price adjustment tactics identified at the bottom of page 1.

11. How can patterns of temporary price discounts “train” consumers to stop buying at full price?

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