Pricing the Product
Read this chapter. Pricing is a difficult issue because most products will sell at some volume at just about any price level. Some customers are willing to pay almost any price for a specific product, but how many of those customers exist? Marketers could consider a value-priced model, but this may make the product's price so low that there is no way to profit. One common pricing strategy is known as "the loss leader", which involves selling one product below the cost to manufacture it to get it in customers' hands. They make up for this loss later with complementary goods. This is commonly seen in video game console sales. Console system manufacturers like Sony and Nintendo will price the system below the cost to manufacture it. Consumers adopt the systems due to the attractive price point, and the manufacturer makes up for the initial loss on the system with sales of proprietary accessories and video games.
DEVELOPING A PRICING STRATEGY
While pricing a product or service may seem to be a simple process, it is not. As an illustration of the typical pricing process, consider the following quote: "Pricing is guesswork. It is usually assumed that marketers use scientific methods to determine the price of their products. Nothing could be further from the truth. In almost every case, the process of decision is one of guesswork".
Good pricing strategy is usually based on sound assumptions made by marketers. It is also based on an understanding of the two other perspectives discussed earlier. Clearly, sale pricing may prove unsuccessful unless the marketer adopts the consumer's perspective toward price. Similarly, a company should not charge high prices if it hurts society's health. Hertz illustrates how this can be done in "Integrated marketing" below.
A pricing decision that must be made by all organizations concerns their competitive position within their industry. This concern manifests itself in either a competitive pricing strategy or a nonprice competitive strategy. Let us look at the latter first.