Pricing tactics (32)

Pricing tactics compose the most visible and pragmatic part of offering pricing guidelines. They are the day-to-day tools of managers and sales agents.

A price tactic is a small-scale, often short-duration line of action that uses price as the predominant resource and whose main objective is the success of the negotiation.

Although price is its predominant resource, others, such as product composition, delivery services, warranty, payment terms, discounts, bonuses, and other advantages, can be combined.

Pricing tactics can be classified according to their genesis into proactive and reactive, their sustainability into sustained and supplemented, their transience into stable and flexible, and their compliance into licit and illicit, as shown in the following figure:

Regarding their genesis, proactive tactics are those sponsored by the offerer independently of the action of other parties. Reactive tactics are those based on the offerer’s anticipation or reaction to movements by buyers, competitors, or established authorities. The tactics called penetration price, psychological price, and discount price are, in principle, proactive; price on demand, bargain price, and predatory price are strictly reactive.

As to their sustainability, sustained pricing tactics produce a satisfactory economic result without the need for complementary sales or charges. That happens with the tactics geographic price, premium price, and skimming price. Instead, supplementary tactics are those whose prices depend on the sale of other products, additional quantities and charges, or the performance of certain services to become economically viable. The tactics bait price, compensated price, bundling price, and volume price usually present this characteristic.

Another way of classifying them is in terms of their transition into stable and flexible pricing tactics. In stable tactics, the prices tend to remain constant over time, while in flexible, they change at the offerer’s convenience. List price, reference price, and captive price are usually stable; event price, bid price, and promotional price are generally flexible.

Finally, tactics can be licit or illicit, depending on their compliance. So, it is sufficient to remember that many countries’ laws prohibit collusive pricing, predatory pricing, fixed resale pricing, misleading pricing, price discrimination, and dumping.

However, strictly speaking, there is no purist tactic in the sense of not having elements that could fit into another of these categories. Some may fit into several of them.

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