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.
SUMMARY
The chapter begins by defining price from the perspective of the consumer, society, and the business. Each contributes to our understanding of price and positions it as a competitive advantage.
The objectives of price are fivefold: (1) survival, (2) profit, (3) sales, (4) market share, and (5) image. In addition, a pricing strategy can target to: meet competition, price above competition, and price below competition.
Several pricing tactics were discussed. They include new product pricing, price lining, price flexibility, price bundling, and the psychological aspects of pricing.
The chapter concludes with a description of the three alternative approaches to pricing: cost-oriented, demand-oriented, and value-based.