Pricing decisions are the choices businesses make when setting prices for their products or services.
Pricing is considered part of a company’s marketing strategy because it influences its relationship with customers: When prices are fair and competitive, customers come back, increasing the profitability of the business.
Pricing decisions can be simple or complex.
- Simple pricing involves charging what competitors charge for similar goods and services. This strategy is often used by retailers and wholesalers selling commodities. Companies that make simple pricing decisions often try to increase sales by making small, competitive adjustments such as purchase discounts, volume discounts and purchase allowances.
- Complex pricing is based on the originality of a product or service and what customers are willing to pay for it. This type of pricing is determined through negotiation with the customer and is common for custom furniture, artworks and consulting services.
More about pricing decisions
Whether pricing strategy is simple or complex, a business must:
- Understand its customers and how price influences their purchasing decisions
- Know what competitors are offering and what they charge for their products and services
- Adjust quickly to changes in markets, vendors and customers
- Help customers understand why its products or services are priced as they are
- Be able to negotiate with wholesalers, retailers and other suppliers and resellers
- Track how pricing affects sales