Is the Price Right?


Determining the right price for a product or service is not always easy. Organizations need to determine the strategy that is best for meeting its objectives. Does the organization want to establish a beach-head and gain market share, or reach the elite purchasers? Pricing options include demand-oriented, cost-oriented, profit-oriented, and competition-oriented approaches. Within these various approaches are price models that include skimming, penetration, luxury, bundling, price-lining, return-on-investment, and more. And finally, do not discount the appeal used with psychological pricing.

All these strategies are interesting, but how does one apply them to a unique product such as a rare Stradivari viola made in the 1700s? Or a unique dog breed such as the Tibetan Mastiff? In the case of the Stradivari, the auction price starts at $45 million. The Tibetan Mastiff dog, while not rare, was sold for nearly $2 million at a recent Chinese luxury pet fair.

It is interesting to review these purchases and determine what strategies are being used to drive the prices to these dizzying heights.

Group Activities and Discussion Questions:
1. Discuss pricing strategies (e.g., demand-oriented, cost-oriented, profit-oriented, competition-oriented, etc.).
2. View stories about the Tibetan Mastiff and Stradivari viola:
3. Divide students into teams. Have each team select a different price approach and determine a SMART objective for the approach.
4. Next, have students use their selected price model to determine prices for the ordinary products (e.g., milk, gas, eggs, etc.), shopping products (e.g., shoes, jackets, etc.), and luxury items (e.g., Tiffany, Louis Vitton), and rare (e.g., Tibetan Mastiff, Stradivari viola).

Source: Associated Press, Washington Post, New York Times, other news sources, March 2014

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