Cost Oriented Pricing

Topics: Marketing, Pricing, Cost Pages: 5 (1441 words) Published: April 18, 2012
Journal of Comprehensive Research, Volume 8, Page 9
Cost-oriented pricingthe disadvantages of the lower quality item and to switch customers’ attention to higher-quality and more expensive products. Customers can buy the bait-time, but only withgreat difficulty. d.

Odd-Even Pricing
Some marketers feel that consumers will react more favorably to prices ending incertain numbers, usually the odd numbers. Retail studies show that merchants do usecertain process more frequently than others – i.e. they do odd-even pricing.For merchandise selling under $50, prices ending with 95 – such as $5.95, $6.95and so on are common. In general, prices ending in nine are most popular followed byprices ending in five and three. For merchandise selling over $50 prices that are $1 or $2below the even-dollar figure are the most popular.Marketers using these prices seem to assume that they have a rather jaggeddemand curve; that consumers will buy less for a while as prices are lowered and thenmore as each “magic” price is reached.Some managers simply feel that certain prices for some products arepsychologically appealing. Between these prices are whole ranges where customersperceive prices as roughly equivalent. Price cuts in these ranges, would not increase thequantity sold. Below such a range, customer would buy more for a while, and then thequantity demanded would remain constant at lower prices.Pricing neckties at various levels – say $2.50 and $10 – may be an attempt toprice as nearly as possible to the top of such ranges. This conception of demand underliesthe price-lining policy discussed below. PRICING A FULL LINE OR A TOTAL PRODUCT

Emphasis has been and will continue to be on the problems of pricing a single item,mainly because this simplifies our discussion. But most marketing managers actually areresponsible for more than one product. In fact, their product may be the whole company line.Many companies offer a complete line (or assortment) of products and have to do fullline pricing. But the correct pricing approach depends on which of two basically differentstrategies the firm follows. In one case, all products in the company’s line may be aimed at thesame general target market, which makes it important for all prices to be somewhat related toone another.In other cases, the different products in the line might be aimed at entirely different targetmarkets. Here, there doesn’t have to be any relation between the various prices. A chemicalmanufacturer of a wide variety of organic compounds with several target markets for example,probably should price each product separately.Examples of a full line being offered to the same target market are a TV manufacturerselling an entire line to retailers, or a forklift truck producer offering various sizes to largemanufacturer or a grocery retailer with thousands of items. Here the firm considers thecustomers’ reaction to its full line of prices.Usually the marketing manager attempts to price product in the line so that the prices willappear logically related and make sense to potential customers. Most customers, especially

Journal of Comprehensive Research, Volume 8, Page 10
Cost-oriented pricingindustrial customers, feel that prices should be related to cost and this must be considered indeveloping prices. Customers usually realize that small production runs or handling smallquantities is likely to cost more. And they may be willing to pay prices for items which theyknow have a small market.The marketing manager must try to recover all costs on the whole line, perhaps by pricingquite lowly on competitive items and much higher on less competitive items. But costs are notmuch help to the marketing manager in full-time pricing. There is no single correct way toallocate a company’s total fixed costs to each of the products. Many methods are tried inpractice, but all are arbitrary. And if a certain method is carried through without regard todemand, it may lead to extremely...
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