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Pricing is one of the four aspects of marketing. The other three parts of the marketing mix are product management, promotion, and distribution. It is also a key variable in microeconomic price allocation theory.

Pricing involves asking questions like:

A well chosen price should do three things: From the marketers point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumers surplus to the producer.

The effective price is the price the company receives after accounting for discounts, promotions, and other incentives.

Price lining in the use of a limited number of prices for all you product offerings. This is a tradition started in the old "five and dime" stores in which everything cost either 5 or 10 cents. Its underlying rationale is that these amounts are seen as suitible price points for a whole range of products by perspective customers. It has the advantage of ease of administering, but the disadvantage of inflexibility, particularly in times of inflation or unstable prices.

A loss leader is a product that has a price set so low that it acts as a promotional device and draws customers into the store.

Promotional pricing refers to an instance where pricing is the key element of the marketing mix.

The price/quantity relationship refers to the perception by most consumers that a relatively high price is a sign of good quality. The belief in this relationship is most important with complex product that are hard to test, and experiential products that cannot be tested until used (such as most services). The greater the uncertainty surrounding a product, the more consumers depend on the price/quantity hypothesis and the more of a premium they are prepared to pay.

Premium pricing (also called prestige pricing) is the strategy of pricing at, or near, the high end of the possible price range. People will buy a premium priced product because:

Demand based pricing refers to any of the pricing methods that use consumer demand as the central element. These include : price skimming, price discrimination and yield management, price points, psychological pricing, bundle pricing, penetration pricing, price lining, and premium pricing.

See also:

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