Price Points

Examples of Price Points in the following topics:

• Terms Used to Describe Price

  • Dollar General is a general store or "five and dime" store that sets price points only at even amounts, such as exactly one, two, three, five, or ten dollars (among others).
  • The price of an item is also called the price point, especially where it refers to stores that set a limited number of price points.
  • For example, Dollar General is a general store or "five and dime" store that sets price points only at even amounts, such as exactly one, two, three, five, or ten dollars (among others).
  • Other stores (such as dollar stores, pound stores, euro stores, 100-yen stores, and so forth) only have a single price point ($1, £1, 1€, ¥100), though in some cases this price may purchase more than one of some very small items.
  • From a customer's point of view, value is the sole justification for price.

• Product Line Pricing

  • Line pricing is the use of a limited number of price points for all the product offerings of a vendor.
  • Line pricing is the use of a limited number of prices for all the product offerings of a vendor.
  • Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers.
  • From the seller's point of view, line pricing holds several benefits:
  • The product and service mix can then be tailored to select price points.

• Return on Investment

  • Pricing objectives or goals give direction to the whole pricing process.
  • Determining what your objectives are is the first step in pricing.
  • When deciding on pricing objectives, you must consider:
  • Hence, it is important to keep all investments in mind when setting prices.
  • Explain why pricing objectives focus on delivering a return on investment (ROI)

• Psychological Pricing

  • Psychological pricing is a marketing practice based on the theory that certain prices have meaning to many buyers.
  • Inferring quality from price is a common example of the psychological aspect of price.
  • Another manifestation of the psychological aspects of pricing is the use of odd prices.
  • We call prices that end in such digits as 5, 7, 8, and 9 "odd prices. " Examples of odd prices include: $2.95, $15.98, or $299.99 .
  • Psychological pricing is one cause of price points.

• Settling the List Price

  • Pricing is a key variable in micro-economic price allocation theory and part of the four "P's-" of the marketing mix; pricing, product, promotion and place.
  • The manufacturer's suggested retail price (MSRP), list price or recommended retail price (RRP) of a product is the price which the manufacturer recommends to the retailer.
  • Value to the customer should be taken into consideration in addition to pricing objectives, profit maximization, geographic and buying habit considerations, discounting, rate of return, competitive indexing, the image conveyed by the price, customer price sensitivity, any legal restrictions, the category price points, price ceilings and floors and how payment is to be made.
  • From the marketer's point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay.
  • A good pricing strategy is one that strikes a balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price beyond which the organization experiences a no demand situation).

• Geographic Pricing

  • Ownership of the goods is transferred to the buyer as soon as it leaves the point of origin.
  • Uniform delivery pricing (also called postage stamp pricing): The same price is charged to all.
  • Zone pricing: Prices increase as shipping distances increase.
  • Basing point pricing: Certain cities are designated as basing points.
  • All goods shipped from a given basis point are charged the same amount.

• The Influence of Supply and Demand on Price

  • Changes in either supply or demand will move the market clearing point and change the market price for a good.
  • It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price).
  • The point where the supply line and the demand line meet is called the equilibrium point.
  • In general, for any good, it is at this point that quantity supplied equals quantity demanded at a set price.
  • This process normally continues until there are sufficiently few buyers and sufficiently many sellers that the numbers balance out, which should happen at the equilibrium point.

• Break-Even Analysis

  • The break-even point is the point at which costs and revenues are equal.
  • Try to reduce variable costs (the price it pays for the tables by finding a new supplier)
  • In the linear Cost-Volume-Profit Analysis model, the break-even point - in terms of Unit Sales (X) - can be directly computed in terms of Total Revenue (TR) and Total Costs (TC) as: where TFC is Total Fixed Costs, P is Unit Sale Price, and V is Unit Variable Cost.
  • Thus the break-even point can be more simply computed as the point where Total Contribution = Total Fixed Cost:
  • Analyze the concept of break even points relative to pricing decisions

• Transfer Pricing

  • Transfer pricing describes all aspects of intracompany pricing arrangements between business entities for goods and services.
  • In the diagram that follows , this intersection is represented by point A, which will yield a price of P*, given the demand at point B.
  • The optimum price and quantity remain the same.
  • It can be shown algebraically that the intersection of the firm's marginal cost curve and marginal revenue curve (point A) must occur at the same quantity as the intersection of the production division's marginal cost curve with the net marginal revenue from production (point C).
  • Outline the concept and rationale of transfer pricing as a pricing tactic

• Markup Pricing

  • In cost-plus pricing, we use quantity to calculate price, but price is the determinant of quantity.
  • Price will be calculated through the formula in .
  • The following points explain as to why this approach is widely used:
  • Firms which prefer stability use cost-plus pricing as a guide to price products in an uncertain market where knowledge is incomplete.
  • Examine the rationale behind the use of markup pricing as a general pricing strategy