Module MM061

Price Policy (Marketing Mix II)

 

Module authors

Ko de Ruyter

Maastrich University
The Netherlands

 

 

 

Debbie I. Keeling

Loughborough University
UK

Learning objectives

After you completed this module, yor will be able to:

  • Understand the determinants of a price policy;
  • Differentiate between price strategies;
  • Recognize various price tactics;
  • Understand the concept of price (in)elasticity;
  • Apply different pricing methods;
  • Understand how break-even analyses are used;
  • Recognize the pros and cons of discounts.
Content

1. Introduction
2. Price policy determinants
3. Price strategies
4. Price tactics
5. Pricing methods
6. Price discounts

Workload units 1
Read excerpt Price Policy

 

Why Open School of Management believes that knowing the instruments of price policy is important

In summary, price policy governs or designates both the retail and wholesale prices for goods and services. Profit maximization is one of the primary goals of product or services pricing. Pricing policy can help to achieve this goal. With the pricing policy, the primary goal is for the firm to recover its total costs and boost the confidence of its operations. Students must learn how to set the price to maximize the profit but still appeal to the masses. This is the essence of pricing policy.

 

Why study price policy?

Since the recent worldwide economic crisis, there has been much hesitation of people to spend. This is why it's important to set the right price point to make the product appealing to purchase for customers and also to maximize profits. When setting a price practice, ensure that Monopoly Trade Practices (MTP), Unfair Trade Practices (UTP), and Restrictive Trade Practices (RTP).

Price stabilization is also another objective of a price policy. This is important to the economic environment. When prices are stable, businesses and the economy thrives. Uncertainty in businesses build fear and speculation. When people begin to see prices fluctuate, they may sell their stock or be hesitant about spending.

Stable prices also build the reputation of the firm. This will also affect the public's perception of the firm and help to keep stock prices stable. When companies have competitive prices, they are more apt to thrive in a business. Competitive prices, typically, equate to a larger market share if the quality of the product is equivalent or superior. This will define the enterprise's strength and success. In general, pricing should be structured to yield the greatest target returns in the most ethical manner.

 

Overview of the module

When students complete their coursework, they should be able to understand and master a variety of principles. Some of these principles include the ability to understand the determinants of a price policy or the ability to apply different pricing methods. It is also recommended that you learn to understand how a break-even analyses should be used, and you should understand the pros and cons of discounts. When students recognize the various price tactics, they'll be well on their way to mastering the concepts in a pricing policy. Here are the details of what should be mastered in a pricing policy.

Price policy determinants

There are numerous price policy determinants that must be considered before making a pricing policy. Marketing is one of the major factors that affect the price. Without exposure, the product will not sell. So, companies should invest in marketing.

Internal, external, and market factors all affect how prices are set. Economic conditions, materials costs, competitor prices, and a host of other factors will affect how products are priced. Ensure that every aspect is understood before making a pricing decision.

Price strategies

Every pricing strategy is a foundation of a pricing policy. One principle students must learn is that the price must always be set to maximize profitability. It may also be used to help new products enter a new market and to increase market share.

Price tactics

Students must master price tactics, which involves the manipulation of a price of a good or service to achieve a particular business objective. A price tactic may involve devising a motivated sales strategy. Price tactics can be set to increase product sales in the short term and convert more customers for the future.

Pricing methods

There are four types of pricing methods: cost-plus pricing, retail market research, value-based pricing, and psychological pricing. For instance, value-based pricing is one of the most profitable forms of pricing. Many people use the pay-for-performance. Your device has to save your customer money or offer some exceptional value. The more value it provides, the more you can charge.

Psychological pricing will take into consideration the consumer's perception of price. For example, if your company is positioned as a low-cost leader, your product should be priced lower than the competition.

Price discounts

Price discounts can be offered to help companies sell products and services. While you should be concerned about profitability, discounts can build customer loyalty and help attract new customers. Every company should have a discount pricing strategy included in their pricing policy. Knowing how to complete one is half of the battle. Knowing when to offer price discounts is part of what should be mastered in order to meet all of your module objectives.

 

Return to Marketing Management (MM Modules).