Notes

What is Price?

The amount of money expected, required, or given in payment for something.

3 IMPORTANT FACTORS IN PRICING

Customer
Competitors
Cost of product

What is the pricing strategy?

A pricing strategy is a model or method used to establish the best price for a product or service.
It helps you choose prices to maximize profits and shareholder value while considering
consumer and market demand.

Pricing strategy objectives:

● Long Run Profits

● Short Run Profits
● Increase Sales Volume Company Growth
● Match Competitors Price Create Interest & Excitement about the product
● Discourage Competitors From Cutting Price
● Social, Ethical & Ideological Objectives
● Discourage New Entrants
● Survival

Decisions in pricing strategy

● Fixed & Variable Cost Competition

● Company Objectives
● Proposed Positioning Strategies
 ● Target Group & Willingness to Pay
● External Market Demand Internal Factors & Product Cost

Pricing As an Element of marketing mix

describes an interaction that is voluntary.
THE COMMERCIAL EXCHANGE Both the buyer and seller participate in the
Marketing consists of the full range of exchange voluntarily because the exchange
activities involved will lead them both to be better off
in facilitating commercial exchanges and
having all of these activities be guided by a
concern for customer needs.

The central idea here is that of the

commercial exchange (see Figure 1.1). This
is where a seller provides a product to a
buyer in return for something in exchange
(usually an amount of money).

. In a society where the distribution of most

The product could be something tangible,
goods and services is governed by a free-
which is referred
market economy, every person engages in
to as a good, or the product could be the
numerous commercial exchanges every day.
result of human or mechanical effort, which
Each little increase in pleasure that a
is referred to as a service.
commercial exchange brings is then
multiplied many times, and the societal
The buyer could be a consumer—an
benefits can become considerable.
individual who purchases a product for his
or her own use—
This essential role of price in commerce is
the buyer could be a business customer—
sometimes disguised by the use of
an individual or group who purchases the
traditional terms. If the product in the
product in order to resell it or for other
commercial exchange is a good, then the
business purposes.
product’s price will most likely be called
“price.”
One aspect that makes the commercial
exchange a very important idea is that it
 shelves, what he pays for the building, for
heat and lights, for
advertising, and so on.

PRICING AS A MARKETING ACTIVITY

Marketing activities are those actions an
organization can take for the purpose of
facilitating
commercial exchanges.

There are four categories of marketing

activities that are particularly
important, which are traditionally known as
the four elements of the marketing mix:
• Product—designing, naming, and
packaging goods and/or services that satisfy
customer needs
• Distribution—efforts to make the
product available at the times and places
that customers want
Price” Versus “Cost” • Promotion—communicating about
Buyers, particularly consumers, will the product and/or the organization that
typically use the terms price and cost produces it
synonymously. • Pricing—determining what must be
A price is what a business charges, and a provided by a customer in return for the
cost is what a business pays. product

Thus, a grocery manager may set a price of term place for the activities of
$3.79 for a 17-ounce box of Honey Nut distribution, the four elements of the
Cheerios, may price large navel oranges at 3 marketing mix can be referred to as “the
for $1.99, four Ps,” a mnemonic that has proved
useful to
These costs include, for example, what he generations of marketing students.
pays the wholesaler per case of Cheerios,
what he pays employees to stock it on the
Important way in which pricing differs from Price is the marketing-mix element that
the other three elements of the marketing produces revenue; the others produce
mix. Product, distribution, and costs.”Because it is a marketing activity
promotion are all part of the process of fundamentally different than the others, it
providing something satisfying to the is important that the implications of
customer. pricing’s uniqueness be fully understood

Product activities concern the design and

packaging of the good or service itself,

Distribution involves getting the product

to the customer,

Promotion involves communicating the

product’s existence and benefits to
customers and potential customers. The marketing concept can be expressed as
follows: The key to business success is to

All three of these types of marketing focus on satisfying customer needs.

activities contribute to the product

being of value to customers. Marketing concept is a modern
form of the philosophical viewpoint known

Value will refer to the benefits, or the as “enlightened self-interest”: One’s self-

satisfactions of needs and interest is best served by focusing one’s

wants, that a product provides to attention on the needs of others.

customers.

Marketing activity involved with

capturing, or “harvesting,” the
value created by the other types of
marketing activities.
The Starting Point in Setting an Initial Markup pricing
Price
Markup pricing also known as the Cost
What’s An Initial Pricing? plus pricing refers to the difference
between the cost to produce and market an
An Initial Price or Initial Offer is the item for sale, and the retail price that is
amount of price per unit on the first day of charged for that item.
the Initial Period determined by the
Management Company. The process of Markup is the difference between a
setting an initial price occurs when a firm product’s selling price and cost as a
introduces a new product or an existing percentage of the cost. Typically, the
product. markup is expressed as a fixed percentage,
and is determined by applying that
Two Starting Point of Setting an Initial percentage to the actual cost of the item.
Price:
Ex. To set an initial price on its line of
1. Cost the amount of money needed to portable audio devices, a consumer
make forget something. electronic retailer might apply a 90%
markup. If the retailer pays $50 for a
2.Price of similar items sold by one or more particular MP3 player, it would use the
competitors. following calculations to set the total price
for the item.
Cost-based pricing
P = $50 + (90% * $50)
Cost-based pricing is a pricing approach P = $50 + 45
that bases a product's price on the cost of P = $95
production, manufacturing, and
distribution. $95 would be the price of the MP3 player.

To generate a profit, the price of a product Gross Margin Pricing

is decided by adding a proportion of the It is the amount of money a company
producing expenses to the selling price. retains after incurring the direct costs
associated with producing the goods it sells
P = C + Added Amount
and the services it provides. It can be also
called Gross Profit Margin. Solution:
Gross Margin = Net Sales – Cost of Goods
FORMULA : * 100
Gross Margin = Net Sales – Cost of Goods
* 100. Net Sales Net Sales = 5,000 - 3,000 * 100
5,000 = 2,000 5,000
Net sales *100
= 0.4 *100
It is a revenue or the total amount of money
generated from the sales of a product. Gross Margin = 40%

FORMULA: Net Sales = Price Product * Cost The main difference between profit
of Goods margin and markup is that margin is
equal to sales minus the cost of goods
Cost of Good - the cost on creating the sold (COGS), while markup is a product’s
product. Includes: selling price minus its cost price.

● Labor Cost Advantages and Disadvantages of Cost

Based Pricing
● Raw Materials
Advantages:
● Manufacturing
● This method ensures that a company
● Packaging always generates profit.

Example: ● It is simple to understand and easy to

apply.
Chie has a business of red pills that cost 100
pesos per capsule. With a cost of goods of ● This method of costing covers all the
3000 pesos for creating the red pills. Rae, production and overhead costs.
our loyal customer, bought 50 capsules and
that was the dean tire sale of the day. Now, ● Ensures that a company generates a
Chie wants to know the gross margin profit consistent profit margin even when costs
that he made for the entire day. rise.
 Competition based pricing
● This method is also useful in finding the Competition based pricing is a pricing
cost of any customized product. model where your price points are heavily
influenced by those of your competitors.
● If customers are aware of the cost, then This method is often used when you have a
they can also understand the reasons similar product or service to your
behind the product price. competitors.

● This method helps companies to bid for There are a few different approaches for this
large projects. method.
Here are three (3) examples:
Disadvantages:
1. Lowest Cost Offering
● Either the price could be too high to
discourage buyers or too low to result in a 2. Premium Price Points
loss.
3. Price Match Promises
● This method does not encourage
businesses to make efforts to control their Advantages of using Competition Based
costs. It is because the company simply Pricing:
passes the cost to the buyers under this
method. 1. You will be seen by potential customers
as a viable option cost-wise.
● It may sometimes ignore the importance
of customers. 2. You’ll gain insight by keeping a close eye
on how competitor prices change.
● This costing method does not consider
the opportunity cost of the investment. Disadvantages of using Competition
Based Pricing:
● It does not take into account demand and
competition. 1. Profit at risk

2. It’s rare to successfully position yourself

at the highest cost or premium option.
Customer needs as the Drivers of Initial
Price

What Is Customer-Driven Pricing?

Setting prices is an important decision that

businesses must make.Cost-based pricing,
competition-based pricing, and customer
driver or value-based pricing are the three
main pricing strategies.The practice of
setting prices based on how much
customers value a company's products or
services is known as "customer-driven
pricing.

Customer-driven pricing, in which prices

are set based on the prices and strategies of
competitors, and cost-based pricing, in
which a business focuses solely on reaching
a margin target with little regard for
analyzing customers' perceived value, are
contrasted with customer-driven pricing.
 % Change in Quantity ÷ % Change in
TYPES OF PRICING STRATEGIES Price = Price Elasticity of Demand

One of the biggest challenges you face as a The concept of price elasticity helps you
small business owner is deciding how to understand whether your product or service
price your product or service. With so many is sensitive to price fluctuations. Ideally,
types of pricing strategies at your you want your product to be inelastic — so
disposal, how do you decide which one is that demand remains stable if prices do
best for your business? fluctuate.
Now, let’s cover some common pricing
Choosing the appropriate pricing strategy strategies. As we do so, it’s important to
can have a substantial impact on your note that these aren’t necessarily
business. Price it right, and you can boost standalone strategies — many can be
your bottom line and capture new combined when setting prices for your
customers. products and services.

Price it wrong, and you risk missing out on What are pricing strategies and why are
hard-earned sales or valuable revenue. they important?

Price Elasticity of Demand Pricing strategies are the different

approaches that businesses take to figure
Price elasticity of demand is used to out what the cost of their goods and
determine how a change in price affects services should be. To choose the
consumer demand. appropriate pricing strategy, companies
consider factors like current product
If consumers still purchase a product demand, cost of goods sold, consumer
despite a price increase (such as cigarettes behavior, and market conditions.
and fuel) that product is considered
inelastic. There are different types of pricing
On the other hand, elastic products suffer strategies depending on the company’s
from pricing fluctuations (such as cable TV goals. Some want to maximize profit
and movie tickets). margins while others want to gain market
You can calculate price elasticity using the share and find new customers in their area.
formula: And then there are other businesses that
simply want to get rid of old inventory.
 12 types of pricing strategies Example: A new cafe opens up in town and
offers coffee that is 30% cheaper than any
1. Penetration pricing other cafe in the area. They also focus on
excellent customer service and implement a
It’s difficult for a business to enter a new loyalty program that offers every tenth
market and immediately capture market coffee for free. When customer demand has
share, but penetration pricing can help. The built up, the cafe slowly starts increasing
penetration pricing strategy consists of the coffee price to a more profitable level.
setting a much lower price than competitors This gives customers a chance to build a
to earn initial sales. These low prices can taste for the coffee and other products and
draw in new customers and divert revenue enjoy the great service as they work towards
from competitors. their free tenth coffee. Many of them will
keep coming back as the price rises.
This strategy is meant to jumpstart sales
and won’t be effective for your long-term 2.Skimming pricing
growth. You’ll likely take a monetary loss at
first in exchange for higher sales volume Businesses that charge maximum prices for
and brand recognition. As you eventually new products and gradually reduce the price
raise prices to be more in line with the over time follow a price skimming strategy.
market, prepare for some customers to drop In this type of pricing strategy, prices
off as they continue to look for the cheapest drop as products end their life cycle and
option. become less relevant. Businesses that sell
high-tech or novelty products typically use
You can combat customer churn up front price skimming.
with strategies that turn those new buyers
into loyal customers. Pro: You can maximize profits of new
products and make up for production costs.
Pro: Market penetration is much easier than
entering with an average price, and you can Con: Customers may become frustrated
quickly earn new customers. that they purchased at a higher price and
watch as the price gradually declines.
Con: It’s not sustainable in the long run
and should only be a short-term pricing Example: A home entertainment store
strategy. starts selling the latest, most advanced
television well above market price. Prices charge a premium price for your high-
then gradually decrease over the year as quality, branded products.
newer products come to market.
This type of pricing strategy works
3. High-low pricing especially well if your target audience
includes early adopters who like to be ahead
High-low pricing is similar to skimming, of the pack. Companies that sell luxury,
except the price drops at a different rate. high-tech, or exclusive products—especially
With the high-low pricing method, the price within the fashion or tech industry—often
of a product drops significantly all at once use a premium pricing strategy.
rather than at a gradual pace. Retail
businesses that sell seasonal products Pro: Profit margins are higher since you
typically use a high-low strategy, often can charge much more than your
using a promotion to clear stock they won’t production costs.
be able to sell for much longer.
Con: This type of pricing strategy only
Pro: You can clear your inventory of out- works if customers perceive your product as
of-date products by discounting them and premium.
putting them on clearance.
Example: A beauty salon builds up
Con: Customers may wait for impending credibility within its market (such as via
sales rather than purchasing at full price. word of mouth or online reviews) and offers
its services for 30% higher than its
Example: A boutique clothing store sells competitors.
women’s sundresses at a high price during
the summer and then puts them on 5. Psychological pricing
clearance once autumn arrives.
Psychological pricing strategies play on the
4. Premium pricing psychology of consumers by slightly
altering price, product placement, or
Premium pricing occurs when prices are set product packaging. Some psychological
higher than the rest of the market to create pricing techniques include offering a “buy
perceived value, quality, or luxury. If your two, get one half off” deal or setting the
company has a positive brand perception price to $9.99 rather than $10 (“well, it’s
and a loyal customer base, you can often cheaper than $10, isn’t it?”). Some
businesses also use artificial time
constraints to speed customers into stores, Pro: Customers discover new products they
such as one-day or limited-time sales. weren’t initially planning to buy and may
Nearly any type of business can use this end up purchasing them again.
strategy, but retail and restaurant
businesses most commonly employ this Con: Products that are sold within a bundle
method as it creates the perception of will be bought less often individually since
getting a bargain. consumers are saving money on a bundled
purchase.
Pro: You can sell more products by slightly
tweaking your sales tactics without losing Example: A taco cantina sells tacos, tortilla
profits. chips, and salsa individually but offers a
discounted price if customers buy an entire
Con: Some customers may perceive it as meal with all of these items.
being tricky or sales, which could
potentially tarnish your reputation or lead 7. Competitive pricing
to missed sales.
The competitive pricing strategy sets the
Example: A restaurant sets a gourmet price of your products or services at the
hamburger’s price at $12.95 to lure current market rate. Your pricing is
customers into purchasing at a perceived determined by all other products in your
lower price compared to $13. industry, which helps you stay competitive
if your business is in a saturated industry.
You can also decide to price your products
6. Bundle pricing above or below the market rate, as long as
it’s still within the range of prices set by all
Bundle pricing is a type of promotional competitors in your industry.
pricing where two or more similar products
or services are sold together for one price. With the advent of e-commerce, it‘s now
Bundling is an effective way to upsell easy to compare prices before
additional products to customers or add purchasing—and 96% of consumers do.
value to their purchases. Restaurants, This gives you an opportunity to win over
beauty salons, and retail stores are among customers with a price slightly below the
the many businesses that apply this type of market average.
pricing strategy.
Pro: You can maintain market share in a competitors’ pricing, or market demand,
competitive market and attract customers you may miss out on sales if you set your
who are interested in paying slightly less markup percentage too high.
than your competitors’ rates.
Example: A pizza shop adds up the cost of
Con: You need to diligently watch average its ingredients and labor, then sets the pizza
market prices to maintain a competitive price to receive a 20% profit margin.
advantage for price-conscious consumers.
9. Dynamic pricing
Example: A landscaping company compares
its prices to local competitors. It then sets Dynamic pricing matches the current
the price for its most popular service, a lawn market demand for a product. Also known
maintenance package, below the market as demand pricing, this pricing strategy
average to attract price-sensitive most often occurs when the product at hand
customers. fluctuates on a daily or even hourly basis.
Industries like hotels, airlines, and event
8. Cost-plus pricing venues set different prices daily and apply
this strategy to maximize profits.
Cost-plus pricing involves taking the
amount it cost you to make the product and Pro: You can increase overall revenues by
increasing that amount by a set percentage raising prices when demand is on the rise.
to determine the final price. You can work
backwards to determine your markup Con: Dynamic pricing requires complex
percentage by first figuring out how much algorithms that small businesses may not
you want to profit from each product sold. have the ability to manage.

Pro: Profits are more predictable since Example: A boutique hotel raises its room
you’re setting your markup price to a fixed rates for one weekend because there is a
percentage. popular summer festival in town.

Con: Since this type of pricing strategy 10. Economy pricing

doesn’t account for external factors, like
your Economy pricing consistently undercuts
competitors with the goal of making a profit
through high sales volumes. This type of
pricing strategy usually goes hand-in-hand Pro: You‘re building trust and educating
with low production costs. It works well in potential customers about your product.
the commodity goods sector and is used by You also get their contact details so you can
companies like Walmart and Costco. stay in touch through email marketing.

Pro: You‘re likely to sell a large volume of Con: You don’t make money from every
products. customer immediately and many users may
choose not to upgrade.
Con: You won’t be making much on each
item, so you’ll need to sell more goods than Example: A software company offers basic
usual. Also, if you don‘t manage your virus protection for free with the option to
pricing carefully, you might create the upgrade to several other tiers of
perception progressively higher levels of online
of a low-value product or business. security.

Example: A superstore sells a generic 12. Loss-leader pricing

brand of tea for 10% less than its local
grocery store competitors Loss-leader pricing brings customers to
your store to buy a highly discounted
product (the loss leader). While they’re
. there, they might buy other full-price items
they didn’t plan on—which should more
11. Freemium pricing than make up for the loss of the original
product.
Freemium pricing offers a basic product or
service for free, then encourages customers Pro: This type of pricing strategy attracts
to upgrade to the paid, premium version to customers who might not otherwise visit
access more features or choices. Potential your
customers get a taste of what the product store and exposes them to your full range
or service can do for them and gain insight of products.
into your company. This is a popular
strategy for software businesses and Con: Some customers will only buy the
membership- based organizations. loss leader product (and possibly many of
them), so you need to watch your profit and
stock levels closely.
 • Operating costs
Example: A supermarket offers bread at a • Inventories
very low price on Fridays, attracting people • Demand fluctuations
who might then do all their shopping for • Competitive advantages and concerns
the week. • Demographic data

Choose a pricing strategy that matches your We’ll dive deeper into demographic data in
goalsThere are many types of pricing the next step.
strategies, and it’s critical to find the right
fit for your business. To begin, determine
your business goals. Then select the pricing
method that will help you meet those 2. Determine your buyer personas.
objectives—whether it’s maximizing profits,
obtaining market share, clearing inventory, You have to price your product on the type
or a combination of these. Once you have of buyer persona that’s looking for it. When
your pricing strategy, you can focus on how you look at your ideal customer, you’ll have
to grow your business further. to look at their:

• Customer Lifetime Value

How to Create a Pricing Strategy • Willingness to Pay
• Customer Pain Points
1. Evaluate pricing potential. To aid in this process, interview customers
and prospects to see what they do and like,
You want to make a strategy that is optimal and ask for your sales team’s feedback on
for your unique business. To begin, you the best leads and their characteristics.
need to evaluate your pricing potential.
This is the approximate product or service 3. Analyze historical data.
pricing your business can potentially
achieve in regard to cost, demand, and Take a look at your previous pricing
more. strategies. You can calculate the difference
in closed deals, churn data, or sold product
Some factors that can affect your pricing on different pricing strategies that your
potential include: business has worked with before and look at
which were the most successful.
• Geographical market specifics
4. Strike a balance between value and To see the competition’s full product or
business goals. service offering, conduct a full competitive
analysis so you can see their strengths and
When developing your pricing strategy, you weaknesses, and make your pricing strategy
want to make sure the price is good to your accordingly.
bottom line and your buyer personas. This
compromise will better help your business So we’ve gone over how to create a pricing
and customer pool, with the intentions of: strategy, now let’s discuss how to apply
these steps to different businesses and
• Increasing profitability industries.
• Improving cash flow
• Market penetration Pricing Models Based on Industry or
• Expanding market share Business
•Increasing lead conversion
Not every pricing strategy is applicable to
5. Look at competitor pricing. every business. Some strategies are better
suited for physical products whereas others
You can’t make a pricing strategy without work best for SaaS companies. Here are
conducting research on your competitors’ examples of some common pricing models
offerings. You’ll have to decide between two based on industry and business.
main choices when you see the price
difference for your same product or service: Product Pricing Model

• Beat your competitors’ price - If a Unlike digital products or services, physical

competitor is charging more for the same products incur hard costs (like shipping,
offering as your brand, then make the price production, and storage) that can influence
more affordable. pricing. A product pricing strategy should
consider these costs and set a price that
• Beat your competitors’ value - Also known maximizes profit, supports research and
as value-based pricing, you can potentially development, and stands up against
price your offering higher than your competitors.
competitors if the value provided to the
customer is greater. We recommend these pricing strategies
when pricing physical products: cost- plus
pricing, competitive pricing, prestige Events can’t be accurately measured by
pricing, and value-based pricing. production cost (not unlike the digital
products we discussed above). Instead,
Digital Product Pricing Model event value is determined by the cost of
marketing and organizing the event as well
Digital products, like software, online as the speakers, entertainers, networking,
courses, and digital books, require a and the overall experience — and the ticket
different approach to pricing because prices should reflect these factors.
there’s no tangible offering or unit
economics (production cost) involved. We recommend using these pricing
Instead, prices should reflect your brand, strategies when pricing live events:
industry, and overall value of your product. competition- based pricing, dynamic
pricing, and value-based pricing.
We recommend using these pricing
strategies when pricing digital products: Services Pricing Model
competition-based pricing, freemium
pricing, and value-based pricing. Business services can be hard to price due to
their intangibility and lack of direct
Restaurant Pricing Model production cost. Much of the service value
comes from the service provider’s ability to
Restaurant pricing is unique in that physical deliver and the assumed caliber of their
costs, overhead costs, and service costs are work. Freelancers and contractors, in
all involved. You must also consider your particular, must adhere to a services pricing
customer base, overall market trends for strategy.
your location and cuisine, and the cost of
food — as all of these can fluctuate. We recommend using these pricing
strategies when pricing services: hourly
We recommend using these pricing pricing, project-based pricing, and value-
strategies when pricing at restaurants: cost- based pricing.
plus pricing, premium pricing, and value-
based pricing. Nonprofit Pricing Model

Event Pricing Model Nonprofits need pricing strategies, too — a

pricing strategy can help nonprofits
optimize all processes so they’re successful We recommend using these pricing
over an extended period of time. strategies when pricing education:
competitive pricing, cost-based pricing, and
A nonprofit pricing strategy should consider premium pricing.
current spending and expenses, the
breakeven number for their operation, ideal Real Estate Pricing Model
profit margin, and how the strategy will be
communicated to volunteers, licensees, and Real estate encompasses home value
anyone else who needs to be informed. A estimates, market competition, housing
nonprofit pricing strategy is unique because demand, and cost of living. There are other
it often calls for a combination of elements factors that play a role in real estate pricing
that come from a few pricing strategies. models including potential bidding wars,
We recommend using these pricing housing estimates and benchmarks (which
strategies when pricing nonprofits: are available through real estate agents but
competitive pricing, cost-plus pricing, also through free online resources like
demand pricing, and hourly pricing. Zillow), and seasonal shifts in the real
estate market.
Education Pricing Model
We recommend using these pricing
Education encompasses a wide range of strategies when pricing real estate:
costs that are important to consider competitive pricing, dynamic pricing,
depending on the level of education, private premium pricing, and value-based pricing.
or public education, and education
program/ discipline. Agency Pricing Model

Specific costs to consider in an education Agency pricing models impact your

pricing strategy are tuition, scholarships, profitability, retention rates, customer
additional fees (labs, books, housing, meals, happiness, and how you market and sell
etc.). Other important factors to note are your agency. When developing and evolving
competition among similar schools, your agency’s pricing model, it’s important
demand (number of student applications), to take into consideration different ways to
number and costs of professors/ teachers, optimize it so you can determine the best
and attendance rates. way to boost the business's profits.
We recommend using these pricing easy it is for your customers to find similar
strategies when pricing agencies: hourly products to yours on the e-commerce sites
pricing, project-based pricing, and value- of your competitors.
based pricing.
How to Conduct a Pricing Analysis
Manufacturing Pricing Model 1. Determine the true cost of your product
or service.
The manufacturing industry is complex —
there are a number of moving parts and To calculate the true cost of a product or
your manufacturing pricing model is no service that you sell, you’ll want to
different. Consider product evolution, recognize all of your expenses including
demand, production cost, sale price, unit both fixed and variable costs. Once you’ve
sales volume, and any other costs related to determined these costs, subtract them from
your process and product. Another key part the price you’ve already set or plan to set
to a manufacturing pricing strategy is for your product or service.
understanding the maximum amount the
market will pay for your specific product to 2. Understand how your target market and
allow for the greatest profit. customer base respond to the pricing
structure.
We recommend using these pricing
strategies when pricing manufacturing: Surveys, focus groups, or questionnaires
competitive pricing, cost-plus pricing, and can be helpful in determining how the
value-based pricing. market responds to your pricing model.
You’ll get a glimpse into what your target
E-commerce Pricing Model customers value and how much they’re
willing to pay for the value your product or
E-commerce pricing models are how you service provides.
determine the price at which you’ll sell your
online products and what it'll cost you to do 3. Analyze the prices set by your
so. Meaning, you must think about what competitors.
your customers are willing to pay for your
online products and what those products There are two types of competitors to
cost you to purchase and/or create. You consider when conducting a pricing
might also factor in your online campaigns analysis: direct and indirect.
to promote these products as well as how
Direct competitors are those who sell the Using these criteria, organizations gain
exact same product that you sell. These insight into the customer's perception of
types of competitors are likely to compete their organization. The four CVA categories
on price so they should be a priority to include solutions; responsiveness;
review in your pricing analysis. economics; and relationships. Delivering
customer value is key to maintaining long-
Indirect competitors are those who sell term relationships with existing customers
alternative products that are comparable to and earning repeat business. It's an
what you sell. If a customer is looking for important part of meeting customers' needs
your product, but it’s out of stock or it’s out and expectations and learning how they
of their price range, they may go to an change over time.
indirect competitor to get a similar product.
For assessing a customer's value for
4. Review any legal or ethical constraints to marketing, the company needs to find a
cost and price. way to create value for the customers
and then keep them coming back for
There’s a fine line between competing on more. There are five steps to creating
price and falling into legal and ethical and capturing customer value. Here they
trouble. You’ll want to have a firm are:
understanding of price-fixing and predatory
pricing while doing your pricing analysis in Recognize Marketing and Marketing
order to steer clear of these practices. Objectives

Analyzing your current pricing model is Recognize how your product fits into the
necessary to determine a new (and better!) market and what the customer requires.
pricing strategy. This applies whether
you're developing a new product, upgrading Implement a Marketing Strategy That
your current one, or simply repositioning Focuses on the Customer
your marketing strategy
Build Relationships with Your
ASSESSING VALUE TO THE CUSTOMER Customers
Capture customer value.
The Customer Value Assessment is a set of
criteria across four categories that capture a Why is it important to identify the value to
customer's wants, needs, or expectations. the customer?
 Value can exist outside your product or
To maintaining long-term relationships service. Find ways you can make it easier for
with existing customers and earning repeat customers to buy your company's offerings.
business. It’s an important part of meeting
customers’ needs and expectations and 2. Focus on brand perception
learning how they change over time.
Customers are more likely to buy from
What are the Types of value ? brands that represent the same morals and
core values they do. Brands that give back
functional value, monetary value, social to the community or advocate for causes
value, and psychological value. can connect with their audience and help
customers feel good about supporting the
The way iPhone introduced features such as brand.
face Id and touch Id to add security in their
products made the life of customers easy. For example Snickers

Monetary Value Candy lovers can choose between dozens of

chocolate-covered bars, so what makes
For example, tangible property, intangible someone grab a Snickers instead of a Kit
property, labor, and commodities are priced Kat? Yes, it may be taste or preference, but
at their monetary value. the brand has designed clever campaigns to
make people believe that eating Snickers
Social Value will transform you from hangry and
unfocused to sharp and satisfied
For example, a business can sponsor a
charity event, including a car wash or 3. Get customer feedback
chicken barbecue, to raise money for a
needed fire engine or police cruiser. The best way to learn what your customers
find valuable is to ask. Customer feedback
Tips for creating value for customer? and suggestions can help you improve your
offerings and maximize the value of your
1. Improve the buying process services.For example The store receipt
Consumers accept and hold on to in-store
receipts, which makes them a popular
vehicle for soliciting feedback.
 7. Identify your strengths
Organizations are legally obliged to provide
receipts to customers, so it makes sense to If there are other companies that offer
leverage that ‘real estate’ to ask “how did something similar to you, find where your
we do today?” Receipts are a great customer value exceeds theirs and be sure to
feedback tool for getting insights directly communicate that to your customers.
relevant to the purchasing experience.
8. Adjust your marketing strategy
4. Make a unique product
Segment your audience and adjust your
Try to communicate what makes your marketing strategies to fit their value
product or service different from your expectations. Consider factors such as
competitors'. Unique features or offerings geography, demographics and seasons.
can attract customers to your brand and Creating market segments can help you
make them choose you over a similar decide where and how you advertise your
product or service. products or services. For example glove
company may highlight heavier products
and warmth features during cold seasons or
5. Provide a positive experience associated with cold-weather sports, but
spotlight spring products and athletic glove
Value for your customers can be created warm seasons and sports. When
through a positive interaction with you, not highlighting your product or service's
just their purchase. You can enhance the benefits, consider the group seeing it to
customer experience by sending thank you emphasize the benefits that most resonate
emails to follow-up online transactions. with their wants and needs.

6.Prioritize quality over price 9. Educate customers

Offering products and services for less Ensure your customers are getting the most
money than your competitors won't value out of your product or service by
guarantee you more sales. Although cost is providing resources they can use to educate
a large consideration for customers, many themselves on all it offers.
customers are often willing to pay more for
quality products and services. 10. Identify your target audience
After you've segmented your audience, implementing programs that reward
consider finding the group that finds the customers for making repeat purchases.
most value from your product or service. Punch cards, high-status rewards, tiered
Consider devoting a portion of your time, membership levels and special discounts
money and resources to developing new can increase brand perception and customer
products and solutions specifically for this value.
group.
13. Provide valuable content
For example, a children's toy may have boys
ages 9–11 as the target market and the You can create brand value for customers by
boys' parents as the target audience. It may offering free content on your website that is
also be defined as the consumer segment useful and relevant. This can enhance your
most likely to be influenced by an brand's credibility and grow your
advertising campaign. The target market is reputation. Original content, such as blog
also distinct from the buyer persona. posts and helpful articles, can help educate
your customers and provide them with
valuable information.

11. Run enticing campaigns 14. Get involved

Promotional offers can help increase the Hosting giveaways, holding contests and
perceived value of your products and providing interactive content on social
services. Free trials, discounts, media can a great way to connect with your
subscriptions and co-branding audience and encourage people to get to
opportunities are some examples of know more about your brand's personality.
promotions you can run to encourage new Taking part in relevant events or sponsoring
customers and reward existing ones. local groups can also help grow community
and create value.
12. Reward loyalty
Basic Strategies And
Loyalty programs can show customers how The Use of Breakeven
much you appreciate their business, which
can encourage positive perceptions of your
products or services. You can create an Basic Pricing Strategy and When to use
environment of reciprocal value by them
 times utilized as a serious methodology to
1. A skimming price is determined acquire portion of the overall industry, yet
internally by the company and b the an equal the initial investment value
(financial) value your product represents to procedure can prompt the discernment that
your customer, as opposed to basing it on an item is of bad quality.
your competitors. This method applied in
emerging markets, where certain clients will - Advertisers need to comprehend equal the
costly desire the newest, most advanced breakeven examination since it assists them
goods available. with picking the best estimating system and
arrive at shrewd conclusions about the
2. In a neutral strategy, the market short-and long haul benefit of the item. The
determines the prices, and you simply equal the initial investment cost is the
match those of your rivals. A neutral pricing value that will create sufficient income to
strategy has the advantage of being take care of all expenses at a given degree of
effective at all four stages of the lifecycle. creation.

3. Penetration strategy Formula of Breakeven Price:

- It is the concept of taking aggressive This pricing methodology helps the

action to greatly expand one's share of total company in setting up the lowest
sales in the market. The resulting increased acceptable price. Break-even price is
sales volume typically allows a business to calculated by using this formula = (Total
produce goods or obtain merchandise at fixed cost/Production unit volume) +
lower cost thereby allowing it to generate a Variable Cost per unit.
higher profit. Ex.

Definition of Breakeven Pricing and

Importance:

- In assembling, the break-even price is the

cost at which the expense to make
an item is equivalent to its deal cost. Equal
the initial investment evaluating is many
Let’s understand the calculation with the
help of an example. It is a viable evaluating methodology for
another participant.
Suppose Company A has fixed costs of
making mobile of $50,000 and the variable Following are the disadvantages of using
cost per unit is $10. Company A wants to this pricing strategy:
sell 10,000 units in a year.
BEP in this case will be ($50,000/10,000) + When an organization sets a cost lower than
$10 = $15. the contenders to acquire portion of the
overall industry, it becomes hard to raise
So, Company A can set the price above $15 the cost later. Clients become acclimated to
to earn a profit. But, if it sets the price bring down costs, making it harder to raise
below it, it won’t earn any profit. the cost without working on the quality or
amount of the item.
A point to note is that the BEP formula
includes the number of items that a
company expects to sell. In reality, this
number could be different from the
expectations. So, the real break-even price In the event that an organization out of
would be somewhat different from what the nowhere chooses to drop the value, it might
formula gives. make a discernment issue. Clients could feel
that the organization might have thought
Advantages and Disadvantages of twice about the quality in order to decrease
Breakeven Pricing Following are the the costs.
advantages of using breakeven pricing:
A choice to follow breakeven valuing may
It assists the organization with decreasing begin a cost war in the event that
the opposition and rule the market. contenders likewise choose to do likewise.

Such estimating likewise goes about as a It gets challenging for the organization to
passage boundary to beat new decide how much value it ought to raise
participants down. later so as not to drive clients away.

It likewise assists an organization with Assuming that the organization drops the
accomplishing economies of scale. cost and the quality to compensate for the
misfortune, then, at that point, it could lose
clients.

The greatest downside of this methodology

is that it is challenging to maintain. On the
off chance that an organization comes up
short on important assets to support this
system, it could bring about weighty
misfortunes and, surprisingly, shut down.

Such a procedure is likewise against the

unrestricted economy as it diminishes
contest and goes about as a section
hindrance.