Executive Summary

Price is the only one of the four Ps that produces revenue. In setting prices, a company follows a six-step procedure: (1) Select the pricing objective, (2) determine demand, (3) estimate costs, (4) analyze competitors' costs, prices, and offers, (5) select a pricing method, and (6) select the final price.

Companies do not usually set a single price, but rather a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, and other factors. Several price-adaptation strategies are available: (1) geographical pricing; (2) price discounts and allowances; (3) promotional pricing; (4) discriminatory pricing, in which the company sells a product at different prices to different market segments; and (5) product-mix pricing, which includes setting prices for product lines, optional features, captive products, two-part items, by-products, and product bundles.

After developing pricing strategies, firms often face situations in which they need to change prices by initiating price cuts or price increases. In these situations, companies need to consider how stakeholders will react to price changes. In addition, marketers must develop strategies for responding to competitors' price changes. The firm's strategy often depends on whether it is producing homogeneous or nonhomo-geneous products. Market leaders who are attacked by lower-priced competitors can choose to maintain price, raise the perceived quality of their product, reduce price, increase price and improve quality, or launch a low-price fighter line.

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