The Pricing Process

The basic process for developing a price strategy involves 6 steps.

Develop Pricing Objectives

Objectives should be clear. Are we appealing to a small market segment who expect to pay premium dollar? Are we attempting to enter a new market and quickly generate more demand? Your objective should say so.

Identify Target Market and Potential Demand

Analyze which demographic and psychographic elements are attributed to the target market’s buying decisions. Balance that against demand.

If we know that it will take 10,000 DVD players sold to reach our break-even point, are we sure that we will sell at least that many?

Do a Cost to Benefit Analysis

Will the potential profit be worth the expense of development? At which price? By projecting the returns of an assortment of prices, we can determine the best one.

“Shop” the competition

It is vital to know what the competition is doing in terms of price. This will directly affect your position in the market.

Develop a Strategy

Psychological or Promotional? Why? Are we going to focus on demand than low prices?

Evaluate that Strategy

Think the decisions through to the logical conclusion. Will you reach your goals with this price? If yes, set the price, if no, then make a change and re-evaluate.

Remember, as new technologies are developed and the marketing environment evolves, it becomes necessary to re-evaluate the pricing strategy and make changes.

For example, with new vending machine technology, a Coke will most likely cost more in the summer than in winter. Coca-Cola Bottling is now able to offer a flexible price based on demand. The profit per unit can now be maximized on a seasonal basis.