This article may require cleanup to meet Wikipedia’s quality standards. No cleanup reason has been specified. Pricing reduced pricing the process whereby a business sets the price at which it will sell its products and services, and may be part of the business’s marketing plan.
Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the marketing mix, the other three aspects being product, promotion, and place. Pricing can be a manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated pricing systems require more setup and maintenance but may prevent pricing errors. Price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product.
Where manufacturing is expensive, distribution is exclusive, and the product is supported by extensive advertising and promotional campaigns, then prices are likely to be higher. From the marketer’s point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer economic surplus to the producer. Marketers develop an overall pricing strategy that is consistent with the organisation’s mission and values. This pricing strategy typically becomes part of the company’s overall long-term strategic plan.
The strategy is designed to provide broad guidance for price-setters and ensures that the pricing strategy is consistent with other elements of the marketing plan. Operations-oriented pricing: where the objective is to optimise productive capacity, to achieve operational efficiencies or to match supply and demand through varying prices. In some cases, prices might be set to de-market. Tactical pricing decisions are shorter term prices, designed to accomplish specific short-term goals. A traditional tactic used in outsourcing that uses a fixed fee for a fixed volume of services, with variations on fees for volumes above or below target thresholds. The purchase of a printer leads to a lifetime of purchases of replacement parts. In such cases, complementary pricing may be considered.
Complementary pricing is a collective term used to describe `captive-market’ pricing tactics. Contingency pricing describes the process where a fee is only charged contingent on certain results. Contingency pricing is widely used in professional services such as legal services and consultancy services. In the United Kingdom, a contingency fee is known as a conditional fee. Differential pricing is also known as flexible pricing, multiple pricing or price discrimination is where different prices dependent on the service provider’s assessment of the customer’s willingness or ability to pay.
There are various forms of price difference including: the type of customer, quantity ordered, delivery time, payment terms, etc. This method of pricing is often used in B2B contexts where the purchasing officer may be authorised to make purchases up to a predetermined level, beyond which decisions must go to a committee for authorisation. Discount pricing is where the marketer or retailer offers a reduced price. Discounts in a variety of forms – e. Everyday low prices refers to the practice of maintaining a regular low price-low price – in which consumers are not forced to wait for discounting or specials. This method is used by supermarkets. Exit Fees refer to a fee charged for customers who depart from the service process prior to natural completion.
The objective of exit fees is to deter premature exit. Exit fees are often found in financial services, telecommunications services and aged care facilities. Experience curve pricing occurs when a manufacturer prices a product or service at a low rate in order to obtain volume and with the expectation that the cost of production will decrease with the acquisition of manufacturing experience. See also Big Mac Index Geographic pricing occurs when different prices are charged in different geographic markets for an identical product. Guaranteed pricing is a variant of contingency pricing. It refers to the practice of including an undertaking or promise that certain results or outcomes will be achieved.
In the event that the result is not achieved, the client does not pay for the service. High-low pricing refers to the practice of offering goods at a high price for a period of time, followed by offering the same goods at a low price for a predetermined time. This practice is widely used by chain stores selling homewares. The main disadvantage of the high-low tactic is that consumers tend to become aware of the price cycles and time their purchases to coincide with a low-price cycle.
Honeymoon Pricing refers to the practice of using a low introductory price with subsequent price increases once relationship is established. The objective of honeymoon pricing is to “lock” customers into a long-term association with the vendor. This approach is widely used in situations where customer switching costs are relatively high such as in home loans and financial investsments. A loss leader is a product that has a price set below the operating margin. Loss leadering is widely used in supermarkets and budget-priced retail outlets where the store as a means of generating store traffic. A service may price one component of the offer at a very low price with an expectation that it can recoup any losses by cross-selling additional services. For example, a carpet steam cleaning service may charge a very low basic price for the first three rooms, but charges higher prices for additional rooms, furniture and curtain cleaning.