Pricing, what does it mean? (1)

Pricing is, generally speaking, fixing a price for something.

(The Oxford Dictionary defines it as “the act of deciding how much to charge for something”).

For marketers, the term ‘pricing’ transcends setting a price. It becomes a strategic choice.

We sometimes might hear, “Such an event is already priced by the market.” These words mean that economic agents have already assigned a value to what happened, reactively, without a more complex analysis of their alternatives and purposes. That is a simplified pricing manner.

Pricing as a strategic choice differs. To better explain it, let us use the example of supermarket pricing.

In non-professional pricing, each time the purchase price changes, the supermarket manager applies a markup—sometimes 30%—on the unit cost to define the new price to charge.

Nevertheless, in professional pricing, before markdowns, the manager would try to identify the effects of the new price on other offers and the various segments of its customers before pricing it.

In his decisions, this same manager would take into account:
– what is the product sales volume;
– what is the historical profitability of the product;
– who its direct and indirect competitors are;
– what the customer’s perception of the new price is likely to be;
– if the product is a fighting, a reference, or a prestigious one;
– if the price anchors or is anchored by other prices;
– if the product complements or is complemented by other products;
– if the price is premium, medium, or sacrificed;
– if the product is a leader or a follower;
– what is the product position and space on the shelf;
– if the product is subject to price promotions;
– how its competitors are likely to react
and so on.

That would be a professional pricing approach instead of a non-professional one.

C. L. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.