Describe the procedure for setting the right price. The process of setting the right price on a product involves four major steps:
(1) establishing pricing goals;
(2) estimating demand, costs, and profits;
(3) choosing a price policy to help determine a base price; and
(4) fine-tuning the base price with pricing tactics.
A price strategy establishes a long-term pricing framework for a good or service. The three main types of price policies are price skimming, penetration pricing, and status quo pricing. A price-skimming policy charges a high introductory price, often followed by a gradual reduction. Penetration pricing offers a low introductory price to capture a large market share and attain economies of scale. Finally, status quo pricing strives to match competitors' price.
1. A manufacturer of office furniture decides to produce antique-style rolltop desks reconfigured to accommodate personal computers. The desks will have built-in surge protectors, a platform for raising or lowering the monitor, and a number of other features. The high-quality, solid-oak desks will be priced far below comparable products. The marketing manager says, "We'll charge a low price and plan on a high volume to reduce our risks." Comment.
2. Janet Oliver, owner of a mid-priced dress shop, notes, "My pricing objectives are simple: