Price Setting

There are multiple techniques available to marketing managers for setting prices. These techniques are structured and methodical. For this discussion, identify and describe three techniques and the environment or product circumstances for which they are best suited. Be sure to discuss the emotional aspects of pricing. How do emotions influence what customers are willing to pay for a product?

According to Hwang, et al. (2011), to effectively implement their pricing processes, a set of principles, that is accuracy, completeness, responsiveness, and flexibility, along with main considerations for each individual pricing phase are introduced. While seemingly common and straightforward, Hwang, et al. (2011) also pinpoints the following guiding principles to provide companies with practical instructions to manage their pricing processes with efficiency and effectiveness:

Accuracy: Pricing information used for price strategy setting, price change request approval, along with quotation and order processing must be correct. Any action taken at the execution level needs to comply with the objectives defined in the planning level in order to maximize the companys profit margin and to prevent price discrepancies.

Completeness: A company needs to consider internal and external data on macro factors that impact pricing decisions; keep track of historical data; and define pricing rules and performance indicators completely. Such data serve as a foundation for pricing objective and strategy setting, as well as the baseline for pricing performance monitoring in the execution phase.

Responsiveness: Companies need to respond to market changes promptly. For any new pricing program release, internal communication with frontline sales representatives and external communication to key customers also needs to be conducted in a timely manner. Analysis results provided to company executives for pricing strategy formation and price adjustment approval must be in real-time mode.

Flexibility: Factors contributing to the price flexibility include government regulation, market competition, price sensitivity of customers and so on. Companies need to constantly watch market dynamics, develop multiple pricing solutions, and adapt to different circumstances easily.

In addition to, Mark McGuinness (2015) offers important insights for companies and business owners. He firmly states emotional pricing is not for beginners. It requires a certain level of creative accomplishment, as well as knowledge of [your] marketand to start by checking whether emotional pricing is appropriate for [your] situation or business. More specifically, Boachie (2016) has identified five (5) strategies of psychological/emotional pricing: (1) Charm Pricing to reduce the left digit by one cent; for example, a human brain processes $3.00 and $2.99 as different values, where $2.99 is closely associated with $2.00 rather than $3.00; (2) Prestige Pricing this strategy is complete opposite of charm pricing. It involves making all numerical values into round figures, i.e., $99.99 Is converted to $100. Research reveals that rounded numbers (e.g., $100) are more fluently processed and encourage reliance on consumers feelings, compared to non-round numbers (e.g., $99.99), which are less fluently processed on cognition; (3) BOGOF: Buy one, get one free this is a pricing strategy in which customers pay full price for one product or service to get another for free. The psychological strategy at work here is, simply, greedmaking a purchase to get the free item; (4) Comparative Pricing this pricing method may be tagged as the most effective psychological pricing strategy, offering two similar products simultaneously but making one products price much more attractive than the other; and, (5) when a sale is advertised with a previous price side by side with a new one, the company make more sales because customers feel they are getting a bargain and are not interested in researching the drop in price. Nevertheless, to make the new pricing strategy work effectively, use the psychological trick of changing the font, size, or color of the new price.

The emotional aspects of pricing mentioned above are pricing techniques which are available and useful to marketers for setting (and convincing) pricing. Johansson, et al. (2012) discusses the distinction between cost, competition and value-based pricing strategies provides us with a framework with which to understand and categorize different types of pricing practices. These different types of pricing approaches, and a transition towards, for instance, Johansson, et al. (2012) state is a stronger dependence on value-based pricing, provide highly interesting settings in which to study utilization of resources and organizational processes and routines. Pricing capabilities, on the other hand, is a key concept in order to understand the organizational and strategic challenges involved in pricing, through its focus on different types of resources and the way that the organization deploys them (Johansson, et al., 2012). So why is price setting important for companies and business owners? In this competitive environment, more than ever, Kienzler & Kowalkowski (2017) offers that a sound pricing strategy is required to facilitate customer value creation, structure price decisions, and earn a profit, with caution that a deficient pricing strategy inhibits profitability. In sum, Dolguia & Proth (2010) suggest that the pricing models are more or less tools to help better understand what dynamic pricing is than something used to solve real-life problems. Each one of the pricing strategies in Dolguia & Proths (2010) text involves high and low price strategies, price discrimination, discount, price skimming, penetration pricing and revenue management, which all targets a particular objective and applies to certain marketing conditions.

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