Competition-Based Pricing Competition-based pricing involves setting prices based on competitors’ strategies, costs, prices, and market offerings. Consumers will base their judgments of a product’s value on the prices that competitors charge for similar products. No matter what price you charge relative to the competition—high, low, or in-between—be certain to give customers superior value for that price. Review Learning Objective 2: Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. Identify and define the other important external and internal factors affecting a firm’s pricing decisions. Other Internal and External Considerations Affecting Price Decisions Overall Marketing Strategy, Objectives, and Mix Before setting price, the company must decide on its overall marketing strategy for the product or service. Pricing strategy is largely determined by decisions on market positioning. Price is only one of the marketing mix tools that a company uses to achieve its marketing objectives. Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective integrated marketing program. Companies often position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Target costing starts with an ideal selling price based on customer-value considerations, and then targets costs that will ensure that the price is met. Companies may de-emphasize price and use other marketing mix tools to create non-price positions. Organizational Considerations In small companies, prices are often set by top management rather than by the marketing or sales departments. In large companies, pricing is typically handled by divisional or product line managers. In industrial markets, salespeople may be allowed to negotiate with customers within certain price ranges. In industries in which pricing is a key factor, companies often have pricing departments to set the best prices or to help others in setting them. The Market and Demand Pricing in Different Types of Markets Pure competition: The market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price. In a purely competitive market, marketing research, product development, pricing, advertising, and sales promotion play little or no role. Thus, sellers in these markets do not spend much time on marketing strategy. Monopolistic competition: The market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Oligopolistic competition: The market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies. There are few sellers because it is difficult for new sellers to enter the market. Pure monopoly: The market consists of one seller. The seller may be a government monopoly, a private regulated monopoly, or a private unregulated monopoly. | 
