PRI - Pricing Framework [LESSON]

Pricing Framework

Prices can be easily changed and easily matched by your competitors. Consequently, your product's price alone might not provide your company with a sustainable competitive advantage. Nonetheless, prices can attract consumers to different retailers and businesses to different suppliers.

Organizations must remember that the prices they charge should be consistent with their offerings, promotions, and distribution strategies. In other words, it wouldn't make sense for an organization to promote a high-end, prestige product, make it available in only a limited number of stores, and then sell it for an extremely low price. The price, product, promotion (communication), and placement (distribution) of a good or service should convey a consistent image. If you've ever watched the television show The Price Is Right, you may wonder how people guess the exact price of the products. Watch this video clip Links to an external site. to see price guessing on The Price Is Right.

Pricing Objectives

Before pricing a product, an organization must determine its pricing objectives. In other words, what does the company want to accomplish with its pricing? Companies must also estimate demand for the product or service, determine the costs, and analyze all factors (e.g., competition, regulations, and economy) affecting price decisions. Then, to convey a consistent image, the organization should choose the most appropriate pricing strategy and determine policies and conditions regarding price adjustments. The basic steps in the pricing framework are shown in Figure below.

Pricing Framework Set pricing objectives, estimate demand, determine costs, analyze factors affecting pricing decisions, determine pricing strategies and pricing policies for making price adjustments, set initials prices, offer and make price adjustments as needed.

 

The Firm's Pricing Strategies

Different firms want to accomplish different things with their pricing strategies. For example, one firm may want to capture market share, another may be solely focused on maximizing its profits, and another may want to be perceived as having products return with prestige. Some examples of different pricing objectives companies may set include profit-oriented objectives, sales-oriented objectives, and status quo objectives.
View the presentation on the different pricing objectives a firm might have:

 

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