Pricing Strategies: An Overview

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1. A price-setting process is a sophisticated multi-step approach that has to take into account the external environment, competitors, and consumer demand for the product, as well as internal factors such as operating costs. Briefly summarize the main steps of the price setting process and outline the most important aspect of each stage. You are expected to present research findings (from a company or industry, as well as academic) while answering this question.

Price setting is one of the critical challenges that face companies. One can divide the price setting process into the following steps :

1. Establishing the pricing objective - Pricing Objective is the primary goal of the organization, when they set the prices of their products or services.

A study ( Lanzillotti, 1958) was done among 20 large companies in USA- GE,General foods, National Steel and Sears were among them - with regard to the pricing objective and policy that they adopted. The most typical pricing objectives cited were: pricing to achieve a target return on investment, stabilization of price and margin, pricing to realize a target share and pricing to meet or prevent completion. The first method was quite common, with companies looking at the return over the long haul. Companies that used this method were GE, General Motors, Union Carbide and US steel. These were companies that were leaders in their field. Large companies also seemed to prefer to maintain a price which helped them maintain a market share of less than 50% as exceeding this made them vulnerable to competition. Competitive pricing is often adopted when companies would like to curtail a new entrant. For example General Foods reduced the price of certo and surjell where rivals were strong.

2. Determine costs:
Determining costs is an important element in pricing as no company would want to market a product at a loss. Ensuring that your costs are covered in pricing, goes without saying.

Taylor et al. ( 2001) assert that "the devil is in the details" when determining costs and prices for distance delivery of courses, and describes Texas A&M University's process of determining cost and price for distance education courses.

A paper on pricing behavior in Canadian retail gasoline markets ( Noel,2007), finds cost based pricing to be one of the pricing patterns in this market.

3. Estimate demand
Economic ...