Psychological pricing Pricing that considers the psychology of prices, not simply the economics; the price says something about the product. Another aspect of psychological pricing is reference prices —prices that buyers carry in their minds and refer to when they look at a given product. The reference price may be formed by noting current prices, remembering past prices, or assessing the buying situation. Sellers can influence or use these consumers’ reference prices when setting price. Promotional Pricing
With promotional pricing , companies will temporarily price their products below list price and sometimes even below cost to create buying excitement and urgency. Promotional pricing takes several forms. A seller may simply offer discounts from normal prices to increase sales and reduce inventories. Sellers also use special-event pricing in certain seasons to draw more customers. Manufacturers sometimes offer cash rebates to consumers who buy the product from dealers within a specified time; the manufacturer sends the rebate directly to the customer. Some manufacturers offer low-interest financing, longer warranties, or free maintenance to reduce the consumer’s “price.” Promotional pricing, however, can have adverse effects. Used too frequently and copied by competitors, price promotions can create “deal- prone” customers who wait until brands go on sale before buying them. Or, constantly reduced prices can erode a brand’s value in the eyes of customers. The point is that promotional pricing can be an effective means of generating sales for some companies in certain circumstances. But it can be damaging for other companies or if taken as a steady diet. Geographical Pricing We will look at three geographical pricing strategies for the following hypothetical situation: Geographical pricing Setting prices for customers located in different parts of the country or world. FOB-origin pricing A geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination. Uniform-delivered pricing A geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location. Zone pricing A geographical pricing strategy in which the company sets up two or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price. Dynamic Pricing
Throughout most of history, prices were set by negotiation between buyers and sellers. Fixed price policies—setting one price for all buyers—is a relatively modern idea that arose with the development of large-scale retailing at the end of the nineteenth century. Today, most prices are set this way. However, some companies are now reversing the fixed pricing trend.