Pricing Analysis

Pricing Analysis

“Price is the one element that produces revenue. Price is also one of the most flexible elements: It can be changed quickly, unlike product features and channel commitments. Although price competition is a major problem facing companies, many do not handle pricing well. The most common mistakes are these: Pricing is too cost-oriented; price is not revised often enough to capitalize on market changes; price is set independent of the rest of the marketing mix rather than as an intrinsic element of market-positioning strategy; and price is not varied enough for different product items, market segments, and purchase occasions.” (Kotler, 2002, p.231).

This paper will focus on the pricing of books through three different avenues, online stores, retail chains, and discount stores.

Retail Pricing

Pricing is one of the most crucial areas of decision making for retailers. Pricing decisions are tied to the following philosophy (Bermans & Evans, 2003, p.1).

• With a high-end pricing philosophy, a retailer believes prices can be set at above-market levels due to a posh atmosphere, distinctive products, super customer service, etc.

• With a low-end pricing philosophy, a retailer stresses below-market prices due to low operating costs, special buys, tight controls, etc.

• With a medium pricing philosophy, a retailer treats prices as a non-factor in the competitive strategy; this means at-market prices and more attention to store hours, location, product assortment, etc.

Regardless of approach, the key is that it is consistent with the other parts of a retail strategy. People won't pay high prices to "me too" retailers.

According to Bermans & Evans (2003), before discounting exploded, many retailers adhered to suggested list prices, except when running sales. Consumers did not do much comparison-shopping among stores and suggested list prices let retailers meet profit margin goals. (p.2).

Books purchased at retail locations still follow this basic philosophy although the most popular books are slightly discounted. If we look at the book “8 Minutes in the Morning” by Jorge Cruise, Barnes and Noble sell this book for $19.96. This price is slightly lower than the suggested list price of $24.95, approximately a savings of 20%. Books should be favorably priced compared to similar books with similar page counts, unless there is a distinct advantage (i.e., a famous author or a glowing endorsement from someone highly respected in the genre or topic.)

Online Pricing

Brynjolfsson and Smith (1999) study on books and compact disks for 1998-99

found that “Internet retailers had lower prices, made smaller price adjustments, and had

greater or smaller price dispersion than conventional channels, depending on whether

prices were weighted by proxies for market share.”

“Online bookselling works, as long as you don't need a particular title in your hand immediately. Few of these online heroes are prepared to discuss the economics of their pricing strategy, although it is well known that Amazon.com, despite being worth zillions on the stock market, has yet to turn a pre-tax profit. Obviously, they may all be using deep discounting as loss leaders to get people through their portals in the hope of building habit and market share. Cynics say the online book trade is one gigantic loss leader, designed to assemble lists of the affluent to sell them lots of other things, starting with music and moving on to other products and services.”