270 Chapter 10 Product, Price, and Place Copyright Goodheart-Willcox Co., Inc. Demand-Based Pricing Demand-based pricing is a pricing method based on what customers are willing to pay. It is also called value-based pricing and reflects the customer’s perceptions of a product’s value. Demand-based pricing is most effective when the product is unique or there is a high demand for it. For example, a small business is the only one nearby selling new bracelets popular with middle school students. The students could order the bracelets online for $7 plus shipping and handling, but they would not arrive for weeks. Because they are in high demand, the small business can charge $12 for the bracelets and make a higher profit. Competition-Based Pricing Competition-based pricing is a pricing method based primarily on what the competitors charge. The business makes a decision to price above, below, or at the competitor’s prices. To effectively use a competition-based pricing strategy, monitor the competitor’s prices often and make necessary adjustments. Competition-based pricing does not take into account the cost of producing the product, however, and may not provide enough or any profit. Pricing Techniques The last step in pricing products is to select the techniques that work best for the product or service. There are multiple pricing techniques. Two common ones are psychological pricing and discount pricing. Psychological Pricing Psychological pricing is a pricing technique used by retailers to influence buying decisions. It relies on the nature of human psychology to make prices appear more attractive to consumers. There are six main types of psychological pricing: • prestige pricing • odd pricing • even pricing • buy one, get one • bundling • price lining Integrity is defined as the honesty of a person’s actions. Integrity and ethics go together in both personal and professional lives. As a leader, the entrepreneur establishes the reputation of the busi- ness in the community. An entrepreneur who displays integrity creates a positive culture for employees, cus- tomers, and the community. Entrepreneur Ethics