Price is the amount of money requested or exchanged for a product. A primary focus of marketing is to set prices that will help the company increase sales and profits. Setting prices is typically a four-step process. Step 1: Establish pricing objectives. Step 2: Determine costs. Step 3: Analyze product demand. Step 4: Evaluate the competition.
After the base price for a product is established, a business typically applies price mix strategies to arrive at a selling price that helps it remain competitive. One common strategy for adjusting price is product-mix pricing. This strategy is used to reach a profit goal for the entire product mix rather than for individual products. Four examples of product-mix pricing strategies are price lining, captive pricing, optional pricing, and bundling.
Retail businesses may also use psychological pricing strategies, which assume that prices affect how customers perceive products. Common psychological pricing used by retailers includes odd pricing; even pricing; prestige pricing; everyday low pricing; and buy one, get one pricing.
Some businesses may use discount pricing strategies to set prices low for a limited period of time. These strategies are intended to increase overall sales or to quickly sell inventory. Some of the most popular discount pricing strategies companies use are cash, quantity, trade-in, promotional, loyalty, and seasonal discounts.
Businesses must decide which pricing strategy is right for their products. One or more strategies can be used, depending on the situation or product type.