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.
PRICE DEFINED: THREE DIFFERENT PERSPECTIVES
Price from a Societal Perspective
Price, at least in dollars and cents, has been the historical view of value. Derived from a bartering system (exchanging goods of equal value), the monetary system of each society provides a more convenient way to purchase goods and accumulate wealth. Price has also become a variable society employs to control its economic health. Price can be inclusive or exclusive. In many countries, such as Russia, China, and South Africa, high prices for products such as food, health care, housing, and automobiles, means that most of the population is excluded from purchase. In contrast, countries such as Denmark, Germany, and Great Britain charge little for health care and consequently make it available to all.
There are two different ways to look at the role price plays in a society: rational man and irrational man. The former is the primary assumption underlying economic theory, and suggests that the results of price manipulation are predictable. The latter role for price acknowledges that man's response to price is sometimes unpredictable and pretesting price manipulation is a necessary task. Let us discuss each briefly.