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
Irrational man pricing: freedom rules
There are simply too many examples to the contrary to believe that the economic assumptions posited under the rational man model are valid. Prices go up and people buy more. Prices go down and people become suspicious and buy less. Sometimes we simply behave in an irrational manner. Clearly, as noted in our earlier discussion on consumers, there are other factors operating in the marketplace. The ability of paying a price few others can afford may be irrational, but it provides important personal status. There are even people who refuse to buy anything on sale. Or, others who buy everything on sale. Often businesses are willing to hire a USD 10,000 consultant, who does no more than a USD 5,000 consultant, simply to show the world they are successful.
In many societies, an additional irrational phenomenon may exist–support of those that cannot pay. In the US, there are literally thousands of not-for-profit organizations that provide goods and services to individuals for very little cost or free. There are also government agencies that do even more. Imagine what giving away surplus food to the needy does to the believers of the economic model.
Pricing planners must be aware of both the rational as well as the irrational model, since, at some level, both are likely operating in a society. Choosing one over the other is neither wise nor necessary.