Describe what is meant by "base price," and explain the concept of price lining as a pricing tactic for fine-tuning the base price and offsetting rising costs.

Question

What will be an ideal response?

Answer 1

Answers will vary.Base price is the general price level at which the company expects to sell the good or service. After managers understand both the legal and the marketing consequences of price strategies, they should set a base priceThe general price level is correlated with the pricingpolicy: above the market (price skimming), at the market (status quo pricing), or below the market (penetration pricing). The final step, then, is to fine-tune the base price.When a seller establishes a series of prices for a type of merchandise, it creates a price line.Price liningis the practice of offering a product line with several items at specific price points. Wireless providers use price lining for cell phones that are purchased with a two-year contract. The top tier is usually priced at $299 (the highest the market will pay), and subsequent tiers are $249, $199, $149, $99, and $49. Price lining reduces confusion for both the salesperson and the consumer and the buyer may be offered a wider variety of merchandise at each established price.Price lines may also enable a seller to reach several market segments. For buyers, the question of price may be quite simple: all they have to do is find a suitable product at the predetermined price. Moreover, price lining is a valuable tactic for the marketing manager, because the firm may be able to carry a smaller total inventory than it could without price lines. The results may include fewer markdowns, simplified purchasing, and lower inventory carrying charges.Price lines also present drawbacks, especially if costs are continually rising. Sellers can offset rising costs in three ways. First, they can begin stocking lower-quality merchandise at each price point. Second, sellers can change the prices, although frequent price line changes confuse buyers. Third, sellers can accept lower profit margins and hold quality and prices constant. This third alternative has short-run benefits, but its long-run handicaps may drive sellers out of business.