A
ll for-profit organizations and many nonprofit organizations set prices on their
goods or services. Whether the price is called rent(for an apartment), tuition(for
education),fare(for travel), or interest(for borrowed money), the concept is the same.
Throughout most of history, prices were set by negotiation between buyers and sellers.
Setting one price for all buyers arose with the development of large-scale retailing at
the end of the nineteenth century, when Woolworth’s and other stores followed a
“strictly one-price policy” because they carried so many items and had so many
employees.
Now, 100 years later, technology is taking us back to an era of negotiated pricing.
The Internet, corporate networks, and wireless setups are linking people, machines, and
companies around the globe, connecting sellers and buyers as never before. Web sites
like Compare.Net and PriceScan.com allow buyers to compare products and prices
quickly and easily. On-line auction sites like eBay.com and Onsale.com make it easy for
buyers and sellers to negotiate prices on thousands of items. At the same time, new tech-
nologies are allowing sellers to collect detailed data about customers’ buying habits,
preferences—even spending limits—so they can tailor their products and prices.^1
In the entire marketing mix, price is the one element that produces revenue; the
others produce costs. Price is also one of the most flexible elements: It can be changed
quickly, unlike product features and channel commitments. Although price competi-
tion is a major problem facing companies, many do not handle pricing well. The most
common mistakes are these: Pricing is too cost-oriented; price is not revised often
enough to capitalize on market changes; price is set independent of the rest of the
marketing mix rather than as an intrinsic element of market-positioning strategy; and
price is not varied enough for different product items, market segments, and purchase
occasions.
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Designing Pricing
Strategies and
Programs
We will address the following questions:
■How should a company price a new good or service?
■How should the price be adapted to meet varying circumstances and opportunities?
■When should the company initiate a price change, and how should it respond to
competitive price changes?