SUBJECT CODE: MKTG.

107
MODULE NO: Module 1
SUBJECT NAME: PRICING STRATEGY
TOPIC: SETTING THE PRICE

At the end of the lecture/discussion/week, the student should be able to:

 Who is involved in pricing decision?
 Why is pricing so important to the health of the firms?
 Have you covered your production and service delivery costs?
 Are your prices in line with your longer-term business goals?
 What is the customer willing to pay?
 What kind of customer do I want to target?
 How should I react to my competitor's prices?

PART 1. LECTURE/DISCUSSION

BOUNDARIES OF GOOD PRICE

AT what price should your product or service be sold? When releasing new products or services or reviewing
existing practices, executives address pricing with many uncertainties. Nailing the perfect price schedule is the
golden mirage which we chase. Reaching a strong price schedule will require multiple steps. The first should be
an examination of the price boundaries defined by the upper and lower limits.
There are two hard and two soft boundaries for pricing. The hard boundaries are defined by the Total Customer
Value to Consumption for your offering at the upper limit and the True Marginal Cost to produce at the lower
limit. The two soft boundaries lie within the hard boundaries. For the upper soft limit, the Total Customer Value
to Consumption is reduced by costs borne by the customer in making a choice to change their consumption
patterns to include your product or service. This soft upper boundary is referred to as the Customer Value Less
Purchasing Barriers. For the lower soft limit, the True Marginal Cost is increased to include other factors
required in running a business and is referred to as Marginal Cost Plus Overhead.
Conceptually, these price boundaries provide a means to quantify your value proposition and determine the
potential of your business.

THE IMPORTANCE OF PRICING

Pricing is the reflection of everything you do as a business, from your product development all the way down to
a link to your website, because we live in a world driven by value. Nothing else defines a business and a product more.
Let’s explore why pricing is truly the (unbiased) most important aspect of your business by uncovering its theoretical
roots and by illuminating how high of an impact price optimization can have on your profits. Pricing is important since it
defines the value that your product are worth for you to make and for your customers to use. It is the tangible price
point to let customers know whether it is worth their time and investment.

1. Everything comes second to pricing

2. Price optimization a huge impact on increasing profits
Below we’ll go into each of these in more detail. Regardless of your product, pricing decisions remain an afterthought for
many growing businesses. Your pricing strategies could shape your overall profitability for the future.

The Nature of Pricing

When it comes to the business market, prices are everything. Prices are responsible (either partly or fully) for the
decisions that producers and consumers make. Can you remember the last time that you visited a business and wanted
to make a purchase but decided against it because you thought that the price was too high? Or, how about deciding to
make an impulse purchase because you felt as if you were getting a pretty good deal price-wise?

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If you experienced either of these scenarios, then you understand that prices have a major effect on producers and
consumers and the decisions that they make. Let's take a closer look at just how prices can affect the decision making
for producers as well as consumers.

Objectives of Pricing
The main objectives of pricing can be:

• Maximization of profit in short run

• Optimization of profit in the long run

• Maximum return on investment

• Decreasing sales turnover

• Fulfill sales target value

• Obtain target market share

• Penetration in market

• Introduction in new markets

• Obtain profit in whole product line irrespective of individual product profit targets

Pricing Strategies In terms of the marketing mix some would say that pricing is the least attractive element.
Marketing companies should really focus on generating as high a margin as possible. The argument is that the marketer
should change product, place or promotion in some way before resorting to pricing reductions. However, price is a
versatile element of the mix as we will see. Let us now understand the various pricing strategies.

Exchange Value Models

Firstly, to understand the consumer needs and wants, Kotler (2003) believes that values are a set of benefits
that satisfy customers’ needs. Furthermore, Maholtra (2002) divides value into instrumental values that lead to desire
states such as self-confidence, accomplishment, and terminal values such as comfortable life, peaceful world, and
happiness. Secondly, the effort of creating value involves the whole company and its orientation. In Kotler (2003), Porter
explains that value.

The value exchange is the sales transaction between your company and its customers. This transaction
happens repeatedly over and over again. The health of the exchange transaction has a significant impact on
the overall health and success of the business. If the transaction goes well then your customers are happy and
your companies has a chance of long term success. Focusing on your customer value exchange is therefore a
successful business strategy.

Understanding Value Exchange

Each of these four types of pricing challenges can be addressed through the marketing orientation of the firm
and the economic understanding of value exchange. Moreover, quantitative and qualitative analysis can be used to
further clarify the alternatives and tradeoffs. Our understanding of pricing has come a long way, and it is time for
executives to grasp this modern understanding to improve the results of their decisions .

What is the effect of price boundaries in the product?

Lower boundaries can also exist, below which things seem cheap. This can lead to higher sales, although it may also
cause a confusion effect in which people equate 'cheap' with low quality and hence are less willing to buy.

Setting Price
the amount of money charged for a product/service or Total sum value of exchange the consumer offers for
using a product/service. Price is one of the main factors which affect the consumer’s buying decision. Particularly in price
sensitive segments proper price setting plays a major role in the success of the product or the service offered. High price
will make the buyer to look for other options. On the other side low price might give an impression that the product
might be of low quality. So marketers must be very careful in setting the correct price.
Page 2 of 34
The process of price setting is described below

REFERENCES:
https://www.priceintelligently.com/blog/bid/157964/two-reasons-why-pricing-is-the-most-important-aspect-of-
your-business
© 2008-2022 ResearchGate GmbH. All rights reserved.
https://en.blog.businessdecision.com/customer-value-exchange-heart-company/

https://www.brandingstrategyinsider.com/pricing-strategy-focus-on-value-exchange/

https://saylordotorg.github.io/text_managerial-accounting/s10-03-using-cost-volume-profit-
model.html#:~:text=Sensitivity%20analysis%20shows%20how%20the%20cost%2Dvolume%2Dprofit%20model
%20will,and%20target%20profit%20as%20well

SUBJECT CODE: MKTG.107

MODULE NO: Module 2
SUBJECT NAME: PRICING STRATEGY
TOPIC: PROFITS SENSITIVITY TO PRICE

At the end of the lecture/discussion/week, the student should be able to:

 Understand why is price sensitivity is important?
 Identify the classes of goods and services are by nature more sensitive than others.
 Understanding Price Elasticity of Demand.

PART 1. LECTURE/DISCUSSION

Page 3 of 34
Profits Sensitivity to price
How much will customers pay for your goods and services? And how do you decide what to charge? Discover
the factors influencing consumer price sensitivity, and explore tools and techniques for getting the balance just right

. Price sensitivity is a measurement of how much the price of goods and services affects customers’ willingness
to buy them.

For example, imagine you sell cupcakes. If you add $0.10 to the price of a cupcake and your customers immediately start
to visit the bakery across the block instead of yours, they’re exhibiting high price sensitivity.

Price sensitivity varies a lot. It’s influenced by the kind of goods and services you sell, the kind of customer you have, and
the wider market factors, such as social and economic trends.

In economics, price sensitivity is described in terms of elasticity of demand – a numerical figure that’s worked out using
the following equation:

Price elasticity of demand = % change in quantity demanded / % change in price

The relationship between elasticity and price sensitivity is important to understand. Essentially, when there is high
elasticity, you can increase the price without seeing much of a corresponding decrease in demand. When there is low
elasticity, when the price goes up, demand goes down.

Why is price sensitivity important?

Keeping track of price sensitivity is vital because it allows you to understand the impact an increase or decrease in price
will have on your profits, and how to time any pricing changes you have planned to best take advantage of the current
mood among your customers.

There are multiple, ever-changing factors that drive price sensitivity, meaning it’s wise to track it on an ongoing basis so
that you have the necessary information to hand whenever you need it.

When setting prices, the ideal is to achieve the perfect balance (equilibrium) where your price is as high as you can make
it without adversely affecting demand from your customers. Hitting that precise point and staying there is likely
impossible, but careful price sensitivity analysis can help make sure you get as close as you can to your goal.

Type of product or service

Certain classes of goods and services are by nature more sensitive than others. Examples include things like bread, milk,
gasoline, toothpaste – the items people need to live life and do their jobs. You can expect to see demand for these kinds
of goods holding steady no matter the economic climate. However, when times are tough, price sensitivity may increase
as people try to get the best possible deal on these essentials.

On the other end of the scale, there are things that show high price elasticity of demand because they’re less essential,
and demand for them is more affected by other factors such as quality, brand, or style. These might include things like
trips to the movies, vacations, designer clothing and luxury cars.

Profits sensitivity Analysis

is a financial model that allows you to understand the effect of fluctuations in selected variables on your business'
profitability. This model is also referred to as what-if or simulation analysis. It is a way to predict the outcome of a
decision given a certain range of variables. Sensitivity analysis shows how the CVP model will change with changes in any
of its variables (e.g., changes in fixed costs, variable costs, sales price, or sales mix). The focus is typically on how changes
in variables will alter profit.

Sensitivity Analysis: Example

To illustrate sensitivity analysis, let’s go back to Snowboard Company, a company that produces one snowboard model.
The assumptions for Snowboard were as follows:

$ 25
Sales price per unit
0

Page 4 of 34
Variable cost per unit 150

Fixed costs per month 50,000

Target profit 30,000

Recall from earlier calculations that the break-even point is 500 units, and Snowboard must sell 800 units to achieve a
target profit of $30,000. Management believes a goal of 800 units is overly optimistic and settles on a best guess of 700
units in monthly sales. This is called the “base case.” The base case is summarized as follows in contribution margin
income statement format:

This problem is an extension of Note 6.28 "Review Problem 6.2". Recall that International Printer Machines (IPM)

builds three computer printer models: Inkjet, Laser, and Color Laser. Base case information for these three products is

as follows:
Inkjet Laser Color Laser Total
Selling price per unit $250 $400 $1,600
Variable cost per unit $100 $150 $ 800
Expected unit sales (annual) 12,000 6,000 2,000 20,000
60
Sales mix 30 percent 10 percent 100 percent
percent

Total annual fixed costs are $5,000,000. Assume that each scenario that follows is independent of the others. Unless

stated otherwise, the variables are the same as in the base case.

1. Prepare a contribution margin income statement for the base case. Use the format shown in Figure 6.5

"Income Statement for Amy’s Accounting Service".

2. How will total profit change if the Laser sales price increases by 10 percent? (Hint: Use the format shown

in Figure 6.5 "Income Statement for Amy’s Accounting Service", and compare your result with requirement 1.)

3. How will total profit change if the Inkjet sales volume decreases by 4,000 units and the sales volume of other

products remains the same?

4. How will total profit change if fixed costs decrease by 20 percent?

Solution to Review Problem 6.4

1. Base Case:

Page 5 of 34
 2. Laser sales price increases 10 percent:

Total profit would increase $240,000 (from loss of $100,000 in base case to profit of $140,000 in this

scenario).

3. Inkjet sales volume decreases 4,000 units:

Total profit would decrease $600,000 (from loss of $100,000 in base case to loss of $700,000 in this

scenario).

4. Fixed costs decrease 20 percent:

Total profit would increase $1,000,000 (from loss of $100,000 in base case to profit of $900,000 in this

scenario).

Elasticity of Demand
is an important variation on the concept of demand. An elastic demand is one in which the change in quantity
demanded due to a change in price is large. An inelastic demand is one in which the change in quantity demanded due
to a change in price is small. A good's price elasticity of demand is a measure of how sensitive the quantity demanded is
to its price. When the price rises, quantity demanded falls for almost any good, but it falls more for some than for
others. The price elasticity gives the percentage change in quantity demanded when there is a one percent increase in
price, holding everything else constant. If the elasticity is −2, that means a one percent price rise leads to a two percent
decline in quantity demanded. Other elasticities measure how the quantity demanded changes with other variables (e.g.
the income elasticity of demand for consumer income changes).[1]

Price elasticities are negative except in special cases. If a good is said to have an elasticity of 2, it almost always means
that the good has an elasticity of −2 according to the formal definition. The phrase "more elastic" means that a good's

Page 6 of 34
elasticity has greater magnitude, ignoring the sign. Veblen and Giffen goods are two classes of goods which have positive
elasticity, rare exceptions to the law of demand. Demand for a good is said to be inelastic when the elasticity is less than
one in absolute value: that is, changes in price have a relatively small effect on the quantity demanded. Demand for a
good is said to be elastic when the elasticity is greater than one. A good with an elasticity of −2 has elastic demand
because quantity falls twice as much as the price increase; an elasticity of -0.5 has inelastic demand because the
quantity response is half the price increase.

KEY TAKEAWAYS

 Price elasticity of demand is a measurement of the change in consumption of a product in relation to a change in
its price.
 A good is elastic if a price change causes a substantial change in demand or supply.
 A good is inelastic if a price change does not cause demand or supply to change very much.
 The availability of a substitute for a product affects its elasticity. If there are no good substitutes and the product
is necessary, demand won’t change when the price goes up, making it inelastic.

Understanding Price Elasticity of Demand

Economists have found that the prices of some goods are very inelastic. That is, a reduction in price does not increase
demand much, and an increase in price does not hurt demand either. For example, gasoline has little price elasticity of
demand. Drivers will continue to buy as much as they have to, as will airlines, the trucking industry, and nearly every
other buyer.

Economic Price Optimization is a method of finding the theoretically-optimal price for a product from the
known price, quantity sold, and elasticity of demand near that price and quantity sold. This approach is not
recommended for most pricing problems. Price acts as a signal for shortages and surpluses which help firms and
consumers respond to changing market conditions.. If a good is in shortage – price will tend to rise. Rising prices
discourage demand, and encourage firms to try and increase supply.

Profits sensitivity Analysis with changing cost structure

shows how the cost-volume-profit model will change with changes in any of its variables. expenses that a business
incurs, and is typically composed of fixed and variable costs. Fixed costs remain unchanged A sensitivity analysis is
a financial model that allows you to understand the effect of fluctuations in selected variables on your business'
profitability. A sensitivity analysis can provide the answer and allow you to prepare a strategy to deal with these
eventualities.
REFERENCES :

https://en.wikipedia.org/wiki/Price_elasticity_of_demand

https://www.investopedia.com/terms/p/priceelasticity.asp

https://www.extension.iastate.edu/agdm/wholefarm/pdf/c5-207.pdf

Page 7 of 34
SUBJECT CODE: MKTG.107
MODULE NO: Module 3
SUBJECT NAME: PRICING STRATEGY
TOPIC: CUSTOMER PERCEPTION-DRIVEN PRICING

At the end of the lecture/discussion/week, the student should be able to:

 Understand the Customer Perception-Driven Pricing
 Improve perception
 Differentiate Customer-Driven Pricing in previous eras to the Age of E-Commerce
 Know on how Customer-Driven Pricing Works

PART 1. LECTURE/DISCUSSION

Customer Perception – Driven pricing

One important decision companies face is setting prices. The three major pricing strategies are cost-based
pricing, competition-based pricing, and customer driver or customer value-based pricing. Customer-driven pricing is the
practice of setting prices according to customers' perceived value of a company's goods or services. The assumption
basis for this model is that a customer is willing to pay a certain price when the value delivered exceeds that cost.
Customer-driven pricing can work when a product or service is customizable as opposed to commoditized (e.g., corn) as
there will be many options if there are many competitors offering similar products or services. The pricing strategy can
also be applied in different geographical markets, where supply and demand forces are biased toward the seller and the
customer may be willing to pay more than a customer elsewhere. Customer-driven pricing is contrasted with
competition based pricing - setting prices based on competitors' prices and strategies—and cost-based pricing, in which
a company concentrates on reaching a margin target with little regard to analyzing customers' perceived value.
How Customer-Driven Pricing Works

To optimize pricing, companies need to consider how to best segment the market so that prices reflect the differences in
value discerned by different types of consumers. To do this, companies must undertake a comprehensive understanding
of how a customer values a product or service.
If it is a business, is this product or service integral to its operations, something that is absolutely necessary to keep the
business running smoothly? Does it provide additional or differentiated benefits to an ordinary consumer? If so, the
company may be able to set prices at premiums to increase aggregate sales.
If the company's offering is available to customers from several competitors in a given market and lacks meaningful
differentiation, then customer-driven pricing is unlikely to succeed as a strategy to enhance revenues. Where

Page 8 of 34
competition may be thinner, even if its product or service does not distinguish itself, a company may be able to engage
in customer-driven pricing because supply could be constrained relative to demand.
The customer-driven pricing strategy works well for products that appeal to consumers' emotional needs and in niche
markets.
Customer-Driven Pricing in the Age of E-Commerce

In previous eras when information was not as free-flowing as today, companies had more latitude to vary its prices of
goods and services among different customer groups. Product and service attributes, as well as prices, were not as
transparent as they are today. This presents challenges to companies to set customer-driven prices because information
advantages have been eroded.

It is still possible, though, for companies that stay current on the needs of long-standing customers to retain pricing
power when they provide product or service value that exceeds the cost to the customers .

Improving perception

How can companies get more credit from consumers for their pricing, so they can build traffic and earn loyalty?
Companies can choose among tactics in four categories: offering lower prices, shouting out those prices, giving great
deals, and tailoring the experience. Examples of tactics within these categories include price-point policies (such as
ending a price with the digit 9), in-store or website signage, coupons, and a good/better/best assortment mix. The right
combination of tactics, of course, depends on a company’s sector, strategy, and proposition to customers.

A traditional grocer that caters mainly to higher-income customers, for instance, needs to have a broad assortment and
high perceived quality. It would focus on very targeted moves to align price perception with its high-end value
proposition, including strategic promotions and signage, rather than on tactics that would significantly change the
proposition, such as price matching or coupons.

Matching the price -setting approach to the market stage - A matching strategy is the
acquisition of investments whose payouts will coincide with an individual or firm's liabilities the organization matches
the expected life of the current asset with the estimated life of the source of fund to raise these financial assets.
Producers face several problems, challenges and difficulties at the time of pricing their products. Besides, pricing
strategy should be adopted to fix reasonable and proper price. Fixed price strategy should be adopted
accordingly on the basis of pricing strategy. The main strategies are as follows:

REFERENCES:

by Sandeep Heda, Stephen Mewborn, and Stephen CaineJanuary 03, 2017

https://analysisproject.blogspot.com/

Published by MBA Skool Team, Last Updated: March 24, 2015

Page 9 of 34
SUBJECT CODE: MKTG.107
MODULE NO: Module 4
SUBJECT NAME: PRICING STRATEGY
TOPIC: PRICE TO VALUE

At the end of the lecture/discussion/week, the student should be able to:

 Understand Value-Based Pricing
 Evaluate Customer Perception

PART 1. LECTURE/DISCUSSION

PRICE TO VALUE
Value-based pricing is a strategy of setting prices primarily based on a consumer's perceived value of a
product or service. Value pricing is customer-focused pricing, meaning companies base their pricing on how much the
customer believes a product is worth.

Value-based pricing is different than "cost-plus" pricing, which factors the costs of production into the pricing
calculation. Companies that offer unique or highly valuable features or services are better positioned to take advantage
of the value pricing model than companies which chiefly sell commoditized items.

KEY TAKEAWAYS

Value-based pricing is a strategy of setting prices primarily based on a consumer's perceived value of the product or
service in question.

Value pricing is customer-focused pricing, meaning companies base their pricing on how much the customer believes a
product is worth.

Companies that offer unique or highly valuable products and features are better positioned to take advantage of
the value pricing model than companies which chiefly sell commoditized items.

Understanding Value-Based Pricing

The value-based pricing principle mainly applies to markets where possessing an item enhances a customer's self-image
or facilitates unparalleled life experiences. To that end, this perceived value reflects the worth of an item that
consumers are willing to assign to it, and consequently directly affects the price the consumer ultimately pays.

Although pricing value is an inexact science, the price can be determined with marketing techniques. For example,
luxury automakers solicit customer feedback, that effectively quantifies customers' perceived value of their experiences
driving a particular car model. As a result, sellers can use the value-based pricing approach to establish a vehicle's price,
going forward.

Characteristics Needed for Value-based Pricing

Any company engaged in value pricing must have a product or service that differentiates itself from the competition. The
product must be customer-focused, meaning any improvements and added features should be based on the customer's
wants and needs. Of course, the product or service must be of high quality if the company's executives are looking to
have a value-added pricing strategy.

Page 10 of 34
The company must also have open communication channels and strong relationships with its customers. In doing so,
companies can obtain feedback from its customers regarding the features they're looking for as well as how much
they're willing to pay

Price to- benefits map - the positioning of products on a plane defined by their price on the vertical axis
and the value of their benefits on the horizontal axis. If customers don’t know what they’re paying for, and managers
don’t know what they’re charging for, it’s almost impossible for companies to identify their competitive positions.
Whenever I’ve asked senior executives to map the positions of their company’s brands and those of key rivals, we end
up confused and dismayed. Different executives place their firm’s offerings in different spots on a price-benefit map; few
know the primary benefit their product offers; and they all overestimate the benefits of their own offerings while
underestimating those of rivals. The lack of understanding about competitive positions is palpable in industries such as
consumer electronics, where the number of features makes comparisons complicated; in markets like computer
hardware, where technologies and strategies change all the time; and when products, such as insurance policies, are
intangible.

Customer perception - the opinions, feelings, and beliefs customers have about your brand.How customers perceive
your business to a large extent determines whether they will buy from you, which in turn affects your bottom line.If you
foster a positive perception, consumers are more inclined to trust your business. But someone who forms a negative
perception isn’t likely to continue purchasing your goods and services—they might even speak poorly of your business to
others.Being aware of customer perception helps your organization know what you’re doing right and what needs
improvement. You’ll also have a better understanding of what motivates consumers to engage with your brand. Factors
Affecting Customer Perception Several factors influence how customers think and feel about your business.
1. Customer Experiences-A customer’s personal experience with your business makes a lasting impression—no other
factor will play as big a role in determining their perception of your brand. For instance, a first-time customer that
enjoyed the product, the pricing, and your customer service would start forming a good opinion of your business from
that experience alone.

2. Social Media & Reviews-Nowadays, more consumers do online research first before they come to a purchasing
decision. They’ll typically check out:

Social media pages

Review sites

Forums

In addition to earning about your products, this research lets them find out how you engage with your audience and
how your audience perceives you. This affects their opinion of your brand even before they experience your business
firsthand.

3. Influencers-In marketing, influencers are people who have the power to affect their followers’ purchasing decisions.
For example, someone may decide to buy your product because their favorite YouTuber or celebrity uses it too.But
influencers can also be regular people that the consumer knows personally and trusts their word. If a friend shares a bad
experience they had with a business, this helps shape the customer’s perception—even if the customer themselves
enjoyed their own experience.

4. Brand Values-A 2020 study by 5W Public Relations discovered that 83 percent of millennials prioritize buying from
brands that share similar values with them. So if your organization holds fast to its values and advocacies, you attract
like-minded consumers.

Suppose your company states that it supports sustainability. If your products or business practices aren’t sustainable,
people might perceive your brand as hypocritical.

Why Customer Perception Matters

According to a recent survey, 1 in 3 customers will leave a brand they love after just one bad experience. In other words,
we're not far from a world where your customers' perception of both your brand and quality of service could take
precedence over traditional competitive advantages like pricing, features, or usability.

And if you're not currently investing in your customer experience and perception, you're at risk of falling behind. Many
businesses are already taking stock of their support and services efforts, with 50% of customer-care leaders rating
“investing in new technologies” as one of their top priorities over the next five years, according to McKinsey.

Page 11 of 34
New product positioning - a strategic exercise that defines where your product or service fits in the marketplace and
why it is better than alternative solutions. The goal is to distill who your audience is, what they need, and how your
product can uniquely help

Reference :
Copyright ©2022 Harvard Business School Publishing https://www.investopedia.com/terms/v/valuebasedpricing.asp
© 2021 ROI Call Center Solutions. All Rights Reserved. Privacy Policy | Sitemap.

Copyright © 2021 HubSpot, Inc.

Copyright © 2015 - 2022. SendPulse. All rights reserved

Page 12 of 34
SUBJECT CODE: MKTG.107
MODULE NO: Module 5
SUBJECT NAME: PRICING STRATEGY
TOPIC: PSYCHOLOGICAL INFLUENCE ON PRICE SENSITISITY

At the end of the lecture/discussion/week, the student should be able to:

 Understand Psychological Influence on Price Sensitivity
 Know the four (4) Psychological Pricing Strategies
 Enumerate the Cost Economics
 Understand the Price Variance

PART 1. LECTURE/DISCUSSION

Psychological influence on price sensitivity

With a psychological pricing strategy you can provide a psychological impact that delivers a sense of urgency. You can
change the perception of your pricing by adding an odd number, anchor prices, and a handful of other tactics. The most
important part about this is that you must convey the value of your product. What is Psychological Pricing?

Psychological pricing is the business practices of setting prices lower than a whole number. The idea behind
psychological pricing is that customers will read the slightly lowered price and treat it lower than the price.

4 Psychological pricing strategies

Psychological pricing techniques come in many forms. Here are four examples of psychological pricing strategies:

1. Artificial Time Constraints

2. Charm Pricing
3. Innumeracy
4. Price Appearance

True economic cost - most often applied to the production of commodities and represents the difference between the
market price of a commodity and total societal cost of that commodity, such as how it may negatively affect the
environment or public health.

How do you calculate true economic cost?

You can calculate accounting cost by subtracting your expenses from your revenue. Economic costs represent any
“what-if” scenarios for your business. You can calculate economic cost by subtracting implicit costs from your accounting
cost.

What are cost economies?

Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can
achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a
larger number of goods. Costs can be both fixed and variable

Perceptual challenges This can be through seeing, smelling, touching, hearing or tasting in other
words using all our senses.

Prospect theory The theory that says investors value gains and losses differently, placing more weight
on perceived gains versus perceived losses. An investor presented with a choice, both equal, will choose the one
presented in terms of potential gains. Prospect theory is also known as the loss-aversion theory.

Effect related to prospect theory The isolation effect in prospect theory occurs when people
focus on differences between options rather than similarities. This can cause people to miss out important factors in
decision making. Individual's fear of losses is greater than their joy of gains.

Page 13 of 34
References:

https://www.priceintelligently.com/blog/bid/181764/

https://www.investopedia.com/terms/t/truecosteconomics.as

https://www.investopedia.com › terms › economiesofscale

PART 2
MANAGING PRICE VARIANCES

is a term used in cost accounting which denotes the difference between the expected cost of an item (standard
cost) and the actual cost at the time of purchase. The price of an item is often affected by the quantity of items ordered,
and this is taken into consideration. A price variance means that actual costs may exceed the budgeted cost, which is
generally not desirable. This is important when companies are deciding what quantities of an item to purchase. we
started to discuss the flexible budget variances. This process helps us to understand how well our company performed,
based on budgeted numbers. When we look at revenue or spending variances, or how different our actual revenue and
costs were from our budgeted, we can then start to analyze how well revenues and costs were controlled with that
actual revenue and expense information.

So in our Simply Yoga example, when utilities went up with the additional class offerings, it may be that we were not
effectively scheduling classes, or it may be that students want those options. In either case, we will need to look at how
costs are affected by the various cost drivers, and how to best minimize these variances to run the business profitably.

In our Hupana Running Company budget, we set benchmarks and goals based on historical data. We will be using their
budget to do cost variance analysis on materials, labor and variable manufacturing overhead.

We will discuss standards, which are our benchmarks for measuring performance. We will also look at the steps needed
to effectively calculate our variances and use the information to improve company performance.

Let’s get started with to simple variance!

https://sumup.co.uk/invoices/dictionary/variance/

What are the reasons for price variance?

Causes of the Materials Price Variance
Market-driven pricing changes, such as changes in the prices of commodities. Bargaining power changes by suppliers,
who may be able to impose higher prices than expected. Buying in unusually large or small volumes in comparison to
what was expected when the standard was created.

SUBJECT CODE: MKTG.107

Page 14 of 34
MODULE NO: Module 6
SUBJECT NAME: PRICING STRATEGY
TOPIC: PRICE SEGMENTATION

At the end of the lecture/discussion/week, the student should be able to:

 Understand Price Segmentation;
 Price Segmentation in Practice
 Understand the Design of Segmentation Hegdes
 Discuss the two (2) vital steps to implement Price Segmentation.
 Enumerate the five (5) requirements for effective Segmentation
 Know the Value of Price Segmentation.

PART 1. LECTURE/DISCUSSION

PRICE SEGMENTATION
Price segmentation is the process of charging different prices for the same or similar product or service. You can see
examples everywhere: student prices at movie theaters, senior prices for coffee at McDonald’s, people who use
coupons, and so on. Airlines are the leading industry when it comes to excellent price segmentation; rarely do two
passengers ever pay the same price.

Whether you’re a retailer, restaurant, software company, or building physical products, price segmentation is a tool you
can – and should – absolutely use.

When it comes to implementation of price segmentation, there are many steps outlined in academic literature –
however, there are only 2 steps which are crucial: 1: Segment the market, and 2. Create a mechanism to charge
different prices.

THE 2 VITAL STEPS TO IMPLEMENT PRICE SEGMENTATION

5. SEGMENT THE MARKET

The first requirement is to find segments – or groups – of customers, based on how much they are willing to pay. To
keep this example simple, let’s imagine 2 segments: those willing to pay more and those willing to pay less. Let’s call
them the “rich” and the “poor”. In general, poor people are more willing to invest time, energy, and effort to get low
prices, while rich people are more likely to spend money rather than effort or time.

2. Create a Pricing Mechanism

The best way to learn price segmentation is to go through examples. Let’s look at one we mentioned earlier – students
at the movie theater. The movie industry knows most of us are not students, and are therefore “rich” – whereas
students are the “poor”, because they don’t have full-time jobs and so have less discretionary income. However, the
movie industry still wants them to come to the theaters – to facilitate this, they charge them less. The way they do this is
to offer a discount to students, and in order to get the discount, you have to show a student ID. This way, most of us pay
the normal, “rich” price, and students pay a lower price. https://impactpricing.com/blog/price-segmentation

Price Segmentation in Practice

In practice, the best strategy is one that combines the power of pricing optimization technology with sound business
judgment. Leveraging historic data helps with identifying segments based on past behaviors or attributes. The most
commonly seen include…

 Product/service – What is being sold

 Volume – How much is being sold. Typical deals tend to involve a customer purchasing a certain
number of items to access a specified discount or a reward. This is widely used by subscription
services looking to lock in customers for longer.
 Time of purchase – When is it being sold. The price of a product can change significantly,
depending on when that product was purchased.
 Channel of purchase – Where is it being bought from. There may be discrepancies in the
perceived value of a product when viewed online, versus in real life.

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  Customer – Who is it being sold to. Pricing can vary according to the customer making a purchase
and the ultimate end-use of the product. This customer price can even vary by region of use, or
ship-to location.

VALUE OF PRICE SEGMENTATION

Market segmentation allows you to target your content to the right people in the right way, rather than targeting your
entire audience with a generic message. This helps you increase the chances of people engaging with your ad or content,
resulting in more efficient campaigns and improved return on investment (ROI) Value Segmentation vs. Price
Segmentation

Over the last few months, a number of Journal subscribers have asked about the difference between value
segmentation and price segmentation. To many, these just seem like slightly different terms for the same thing. And
technically, that’s not far from the truth…

Developed correctly, a price segmentation is indeed a form of value segmentation. In other words, a sound price
segmentation model will reflect and codify the circumstances under which different customers place different values on
the offerings, thus resulting in differences in willingness-to-pay.

Technical definitions aside, however, we recognize that these terms are often referring to very different things in
practice:

Value segmentation, as it’s known in many businesses, is something that is done early in the product lifecycle,
usually before the product is ever introduced. As a segmentation model, it’s often relatively coarse; containing just a
handful of the most significant value delineations. And, it’s not uncommon for these value segments to be largely
theoretical, and based primarily on secondary research and/or internal conjecture.

PRICE SEGMENTION
Price segmentation, as we see it being utilized by B2B companies, is often developed and refined throughout the
remainder of the in-market lifecycle. As a segmentation model, it’s usually very granular and may contain thousands of
discrete price segments. And very often, these price segments are based on hard data and factor analysis into different
price responses and willingness-to-pay.

In a recent training webinar about lifecycle pricing, we discussed how many companies actually think of value
segmentation and price segmentation as parts of a two-step, “refinement” process.

In the first step of this process, the coarse, pre-market value segmentation helps establish the basic ranges and major
differences during the development and introduction stages. Then, once there’s some actual in-market data to work
with, the more granular price segmentation model provides additional specificity and relevance, to maximize revenues
and margins in the heart of the lifecycle.

Yes, value segmentation and price segmentation are similar in that they both reflect differences in perceived value. But
in practice, they are very different in their granularity, specificity, and factual basis.

So, is one better than the other? Being much more granular and based on hard data, a true price segmentation model
will clearly have more power than the typical value segmentation. But from our perspective, value segmentation and
price segmentation both have their place and serve a valuable purpose. Copyright © 2022, MindBrew, LLC. All Rights
Reserved.

DESIGNING SEGMENTATION HEGDES

segmentation hedge is a method of segmenting the market according to willingness to pay that prevents customers who
are willing to pay the high price or higher to purchase at the low price
Market segmentation is a marketing technique that almost all companies practice. The process provides marketing
strategists with data for a better understanding of their market, allowing them to create more personalized and
profitable strategies. This practice is important for companies because it minimizes the amount of time, money, and
effort marketing strategists put in certain campaigns.

Page 16 of 34
So what are the requirements for effective market segmentation? Effective segmentation should be measurable,
accessible, substantial, differentiable, and actionable. When a company has segmented their market accordingly, there
is a higher chance that it will become more profitable and successful in the long run.

5 Requirements for Effective Segmentation

Identifying the requirements for effective market segmentation allows companies to create marketing campaigns that
are essential for their growth and development. Here are the five criteria for effective market segmentation:

1.Measurable

The size and purchasing power profiles of your market should be measurable, meaning there is quantifiable data
available about it. A consumer’s profiles and data provides marketing strategists with the necessary information on how
to carry out their campaigns.

It would be difficult to create advertisements for markets that have little to no data or for audiences that can’t be
measured. Always ask whether there is a market for the kind of product or service that your business wants to produce
then define how many possible customers and consumers are in that market.

2. Accessible

Accessibility means that customers and consumers are easily reached at an affordable cost. This helps determine how
certain ads can reach different target markets and how to make ads more profitable.

A good question to ask is whether it’s more practical to place ads online, on print, or out of house. For example, gather
data on the websites a specific target market usually visits so you can place more advertisements on those websites
instead.

3. Substantial

The market a brand should want to penetrate should be a substantial number. You should clearly define a consumer’s
profiles by gathering data on their age, gender, job, socio-economic status, and purchasing power.

It doesn’t make sense to try and reach an unjustifiable number of people — you’re just wasting resources. However, you
also don’t want to market the brand to a group too small that the business doesn’t become profitable.

6. Differentiable

When segmenting the market, you should make sure that different target markets respond differently to different
marketing strategies. If a business is only targeting one segment, then this might not be as much of an issue.

But for example, if your target market is college students, then it’s essential to create a marketing strategy that both
freshman students and senior students react to in the same positive way. This process ensures that you are creating
strategies that are more efficient and cost-effective.

7. Actionable

Lastly, your market segments need to be actionable, meaning that they have practical value. A market segment should
be able to respond to a certain marketing strategy or program and have outcomes that are easily quantifiable.

As a business owner, it’s important to identify what kind of marketing strategies work for a certain segment. Once those
strategies have been identified, ask yourself if the business is capable of carrying out that strategy.

What defines a price variance based upon a proxy that correlates to customer segmentation
based on willingness to pay?
Indirect segmentation. Define price variances based upon a proxy that correlates to customer
segmentation willing to pay.

COMMON PRICE SEGMENTATION HEDGES

The common segmentation hedges, such as age, gender, and income are relatively discernable.
When self-identification and observable customer characteristics are not evident, other pricing tools are
utilized.

EXAMPLE OF PRICE SEGMENTATION

Page 17 of 34
Common characteristics of a market segment include interests, lifestyle, age, gender, etc. Common examples of market
segmentation include geographic, demographic, psychographic, and behavioral. Price segmentation involves charging
different prices to different customers for a product or service that is the same or similar. … Customers can be
segmented for reasons such as volume, service offering, time of purchase, and location.
https://blog.pricebeam.com › effectively-implementing-…

SUBJECT CODE: MKTG.107

MODULE NO: Module 7
SUBJECT NAME: PRICING STRATEGY
TOPIC: PRICE PROMOTIONS

At the end of the lecture/discussion/week, the student should be able to:

 Understand the Price Promotion
 Know the Pros and Cons of Price Promotion

PART 1. LECTURE/DISCUSSION

PRICE PROMOTIONS
Page 18 of 34
To put it simply, price promotion is a marketing technique where the price of a product is kept reduced for a short
period to build customer loyalty and swell sales volume, and then increased later on. Another popular price promotion
in the market is by way of the (in)famous yet effective ‘Buy 1 Get 1 Free’ offers. Two for the price of one, who wouldn’t
relent, right? It’s a promotional strategy that hits the psyches of a chunk of customers. Promotional Pricing is the tactic
of attracting customers, first with the low figures on the price tag, and then layering it up with good quality. The latter
part is extremely important because while a low price tag may help you infiltrate the market, only good quality can help
you maintain that, otherwise your customer base will either shift or fizzle out.

THE PROS
Here’s why you should use promotional pricing as an effective marketing strategy:
1. Promotional Pricing creates a feeling of urgency, i.e. it urges the buyers to act in a now or never kind of a situation.
Everyone wants the best product at the lowest price, and it does just that by selling the product effectively, and sealing
the deal when it comes to the price.
2. Another big advantage is the creation of new customers. Often, when a product or service is launched, there is a
section of customers that gets influenced and there is one that does not. Of the latter, there is a percentage which does
not indulge owing to the price. As for those who don’t buy, a big, fat sale sign is enough to attract their glance and
register the brand in their mind. This is especially effective in the case of new brands that are trying to create a foothold
in the market. While other strategies may cost a fortune, this one is relatively cheaper, and is also tried and tested in the
market. Thus, promotional pricing helps to bring customers into the arena of buyers.
3. Pricing advantage among competitors is yet another thing that the racticingn racticing promotional pricing can
enjoy. Even if it is short-term, promotional pricing ensures that it almost eliminates competition for that period.
4. Promotional pricing drives better revenue and cash flow for the short-term. This is because of the increase in sales
volume due to price reduction. The low price of individual products leads to higher revenue in bulk as larger quantities
get sold.
5. Liquidation of old inventory through sale is yet another advantage that promotional pricing offers. Often, during
sale periods, you see bifurcation of percentages. The old inventory is a part of those highly-discounted categories and
they fly off the shelves in no time, figuratively and metaphorically.
6. A little-lesser-known but nonetheless effective practice is that of upselling, where the sellers convince the buyers to
purchase products that are over the latter’s budget. Cross-selling, where an add-on item is sold along with the original
product is another effective promotional pricing practice. These sellers usually rely on the quality of their upscale
products and offers, hoping the buyers will expand their customer base by spreading the word.
THE CONS
Now, we know you are almost convinced. But, along with the advantages, come disadvantages too, and we’d do you a
disservice if we didn’t introduce you to those. So, after the awesome pros, here are a few cons that you need to be wary
of, should you ever try the tactic of promotional pricing:
1. Promotional pricing can greatly affect your customers’ price perceptions and loyalty. While it may not affect a new
brand so much, it can hit hard if you are an existing brand hoping to revolutionise the market with your new product or
service. Also, once customers, especially new ones, become well-versed with the discounted prices, they will feel
betrayed when you bring the price tag back to the usual level, because they have become so used to the reduced one.
This in turn can affect their loyalty towards the brand or the product.
2. Demography confusion is yet another thing you will have to face. Every brand has a strategy, a part of which is
finding its target audience, based on certain demographic factors. Frequent sales and promotional pricing creates a lot
of confusion in that aspect, because customers will solely come for the low prices rather than the product itself. Also,
they may come to expect discounts all the time, something which is not good for a brand as it could make your
customers apathetic towards your product’s quality, which is not something you’d like.
3. Long-term success is seldom the result of promotional pricing. This is because customers become so used to the low
pricing, and keep that parameter above the quality of the product, that the moment another competitor puts this
practice into effect, the customer could leave your pool and jump into theirs. Not a good position to be in.
4. Promotional pricing can also hamper your relationships with your competitors. Yes, while they are your
competitors, they aren’t your enemies. Given you have to operate in the same circle and strike deals with each other,
this strategy can alienate you from that group which is not good if you want to stay up to date with the fundamentals of
the industry.
Well, the disadvantages may be serious, but that certainly doesn’t mean that you shouldn’t go for promotional pricing. It
is a strategy, so treat it as such. Don’t go overboard with it and strike a balance in its frequency. Most importantly, wait
for your customers to get used to the quality of your product before replicating this strategy. Remember, your main

Page 19 of 34
focus should be your product or service and not its price, because that’s what matters in the long run.
https://marketingessentialslab.com/blog/

POSITIVE EFFECTS OF PRICE PROMOTIONS

A positive monetary effect of price promotion can be produced by the face value of a
coupon or the amount of a rebate. An example of a positive non-monetary effect is that price
promotion can help customers simplify the decision process and reduce the transaction time or
effort.
 Increase sales volume in the short term. Low prices provide an attractive incentive for
customers to buy, especially those who are budget conscious.
 Revenue growth. ...
 Increase inventory turnover. ...
 Maintain current customer loyalty.
NEGATIVE EFFECTS OF PRICE PROMOTIONS

It creates price sensitivity within your targeted demographics. ...


 Customers might question the quality of what is offered. ...
 It is an ineffective way to create long-term success. ...
 It may limit consumer options for items they don’t want.
MANAGING VAGUENCES

Vagueness is a state of being unclear or uncertain. ... The Latin root of vagueness, vagus literally means
“wandering” and figuratively means “vacillating or uncertain.” We had only a vague idea of where we were. I
think I have a vague understanding of how it works. He longed in some vague way for something different. She
felt a vague sense of uneasiness when she was around him.

What are the types of vagueness?

The prevalent theories of vagueness can be divided into three categories, paralleling three logical
interpretations of borderline cases: (i) a borderline case is a case of a truth-value gap; it is neither true
nor false; (ii) a borderline case is a case of a truth-value glut; it is both true and false;

https://www.vocabulary.com › dictionary › vagueness

PRICE PROMOTIONS DESIGN

Temporary Price Reduction, price promotion, sale price, discount price… all mean essentially the same thing; a short-
term lowered price offering the consumer a savings on a purchase. The majority of us learned in Econ 101 that items are
elastic; sales units go up as price goes down. As a buyer, the majority of time I had a conversation with a brand about
sales needing to increase on their product, the first tactic that was discussed was price. Simple, right? If you want sales
to increase on an item, just lower the price. What’s the catch? The catch is that there are multiple ways to determine if a
promotion is effective: margin, sales dollars, pull forward business, etc. As retailers GET BACK TO THE BASICS AND
FOCUS ON THE FUNDAMENTALS, promotions are increasingly being evaluated by retailers in more detail. Translation: it
is getting increasingly harder for brands to get promotions on their products.

Price promotions should be designed to drive consumer behavior.

The worst kind of promotion, for brands and retailers, is one that gives a discount on consumer purchases that would
have happened regardless of the sale. The best way to ensure that TPRs are effectively used and to ensure margin for
brands and retailers isn’t wasted, is to first identify the type of consumer behavior that you jointly want to reward. There
are generally 5 types of consumer behavior that promotions can influence.

Generating new consumers is the goal of most price promotions. This means taking a consumer that has your brand in
their consideration set and using the promotion to close the deal. New consumers are the holy grail for brands, and if
buyers ask a brand why a promo is being recommended, driving new consumers is the goal of the majority of the
promotions. The dissonance between brands and retailers comes from where the consumer is sourced. Brands, to some
degree, are agnostic on whether the new consumer comes from an existing brand in the retailer’s store or if the

Page 20 of 34
consumer is new to the category. However, for a retailer, consumers that switch brands to receive the discount have an
opportunity cost. The trick to these promotions is to understand where the consumer enters the category and what
truly motivates a new consumer purchase.

Driving traffic to the store. While this can seem similar to the new consumer promotions, there is a difference. These
price promotions often include loss leaders, larger discounts, or seldomly promoted items. There are some items that
“get the consumer off the couch” and into a store because the savings are large and some items that determine which
store a consumer will shop. The hope for retailers is that the consumer will buy additional items along with the
promoted item to make the sale worth the margin risk. For brands, the challenge to recommend these promotions is
that a brand needs to prove that the item being recommended is in fact a traffic driver. Success with these promotions is
often easier to obtain if this promoted item is used with other items that also need to be purchased…at regular price…
from the same store.

Stealing share of wallet is another goal that can be achieved with promotions. Most consumers shop at more than one
store for their basic or staple items. My staple purchases are split between Amazon, Target, Walmart, grocery stores,
and sometimes convenience stores… if I’m being honest. Additionally, there are categories that consumers are less
brand loyal to and they might stray between a couple brands leaving opportunity. Share of wallet promotions are used
to entice a consumer to stock-up on one brand at one retailer, earning retention with the promotion. Think about buy-
get promotions, BOGOs, 10 for $10s, or even Target’s buy X items in a particular category and get a gift card. All these
promotions are designed to get a consumer to purchase more items than planned to stock their shelves. Consumer and
purchase insights are needed to determine the right quantity of items to incentivize and to determine if the category
warrants a stock-up promotion.

Trading customers up to a more expensive item. Grocery stores use this tactic often. Branded items will be on sale to
trigger consumers to trade-up from a private label or less expensive option. Depending upon the item, often the national
brand will be equal in price to the private label. The margin win behind these price promotions is either generated by
anticipated future consumer purchases in the brand or driven by brands subsidizing the margin for the retailer with
incentives. However, trading a consumer from a private label into a national brand isn’t the only time these promotions
can be used. This can also be a successful way to encourage a consumer to purchase an item with additional features or
attributes by narrowing the price gap between the alternatives. Think, “but this one is only $X more!” These promotions
are most effective if consumer brand loyalty is known and if consumer insights confirm which products are most likely to
be in the decision-making set.

Not to be forgotten, basket building promotions. These can also be looked at as driving impulse purchases. These price
promotions target items that were not on the consumer’s shopping list with the goal of increasing total ticket price.
There are multiple categories and products that fall into this space, and multiple tactics that can be deployed besides
price to drive similar outcome. Most commonly, retailers use location, location, location to trigger impulse purchases as
well. All the more reason to use consumer insights to support a basket building promotion idea. Understanding what
actually motivates the consumer to add the item to the basket is important when maximizing results. Based upon the
product, it could be location, education, associate recommendation, or getting the product adjacency correct. It doesn’t
have to be price as the only tactic, and more importantly, price might not even be a trigger.. KRISTIN DEMEL RETAIL
STRATEGY DIRECTOR | F e b r u a r y 2 7 , 2 0 2 0

Page 21 of 34
SUBJECT CODE: MKTG.107
MODULE NO: Module 8
SUBJECT NAME: PRICING STRATEGY
TOPIC: DISCUSS MANAGEMENT

At the end of the lecture/discussion/week, the student should be able to:

 Understand Discuss Management
 Know the Challenges of Discount Management Policy
 Establishing Price Structure

PART 1. LECTURE/DISCUSSION

DISCUSS MANAGEMENT
Management is the coordination and administration of tasks to achieve a goal. Such administration activities
include setting the organization’s strategy and coordinating the efforts of staff to accomplish these objectives through
the application of available resources. Management can also refer to the seniority structure of staff members within an
organization.

To be an effective manager, you’ll need to develop a set of skills, including planning, communication, organization and
leadership. You will also need extensive knowledge of the company’s goals and how to direct employees, sales and other
operations to accomplish them.

Universal phenomenon. It is a very popular and widely used term. All organizations – business, political, cultural or
social are involved in management because it is the management which helps and directs the various efforts towards a
definite purpose. According to Harold Koontz, “Management is an art of getting things done through and with the
people in formally organized groups. It is an art of creating an environment in which people can perform and individuals
and can co-operate towards attainment of group goals”. According to F.W. Taylor, “Management is an art of knowing
what to do, when to do and see that it is done in the best and cheapest way”.

Page 22 of 34
Management is a purposive activity. It is something that directs group efforts towards the attainment of certain pre –
determined goals. It is the process of working with and through others to effectively achieve the goals of the
organization, by efficiently using limited resources in the changing world. Of course, these goals may vary from one
enterprise to another. E.g.: For one enterprise it may be launching of new products by conducting market surveys and
for other it may be profit maximization by minimizing cost.

Management involves creating an internal environment: - It is the management which puts into use the various factors
of production. Therefore, it is the responsibility of management to create such conditions which are conducive to
maximum efforts so that people are able to perform their task efficiently and effectively. It includes ensuring availability
of raw materials, determination of wages and salaries, formulation of rules & regulations etc.

Therefore, we can say that good management includes both being effective and efficient. Being effective means doing
the appropriate task i.e, fitting the square pegs in square holes and round pegs in round holes. Being efficient means
doing the task correctly, at least possible cost with minimum wastage of resources

CHALLENGES IN DISCOUNT MANAGAMENT POLICY

3. Easily creating and updating documents

Many organizations rely on word processors or spreadsheets to create and update documents. Policies may be spread
across multiple staff members’ computers and not accessible in one centralized location. This increases the risk of
redundancy, inaccuracy, and even policy violations, since employees lack access to the most up-to-date policies. Plus,
tracking down documents when it’s time to revise them becomes a time-consuming hassle.

2. Providing quick and easy access to the most current policies

Distributing organizational policies via email — or worse, handing out printed documents — means many staff members
will never read them. Plus, tracking and auditing attestation results using these methods becomes next to impossible.

To improve policy awareness and compliance, employees need an easy way to access, read, and attest to the policies
that are applicable to them.

Consolidate policy and document storage in a centralized, searchable digital file library. Employees receive personalized
access to this repository based on their business unit / department, job function, or other parameters to ensure that
staff members see the policies that are relevant to them. Employees can receive email alerts when new or updated
policies are available, accessing them in their personal portal using the in-software document viewer.

3. Training employees on policies

Employees need to be aware of and understand policies if they’re going to follow them. Manual policy management
practices not only make tracking attestations difficult, but also offer no way to verify whether staff members have read
and understood the policies that are most relevant to their department or job function.

IDENTIFYING DISCOUNT MANAGEMENT OPPORTUNITIES

Benefits of discounting
Discounts, loyalty offers and bulk buy pricing are common business practices that can help you:

 move stock
 attract new or inactive customers
 persuade indecisive customers to buy
 reach sales targets during a slow sales period
 improve cash flow
 get free advertising on sales websites

Types of discounting strategies

Depending on your business and customer base, you might choose to offer a:

 special offer or price

Page 23 of 34
  package or bundle
 quantity discount
 value added offer
 seasonal or periodic discount

Copyright DJPR © 2022

DISCOUNT DISCUSSION MANAGAMENT

1. Define your objectives. …
2. Segment shoppers and tailor offers accordingly. …
3. Make sure the timing is right. …
4. Be mindful of your margins. …
5. Implement psychological pricing. …
6. Test different discounting tactics. …
7. Run conditional promotions.

PART 3
ESTABLISHING PRICE STRUCTURES

A major development in Australian business recently is re-designing a more sophisticated pricing structure to collect
more revenue across different customer and price segments without losing volume or margin.The reason why more
companies are choosing to re-design their price structures now (more than ever) is because markets are changing.
Additionally, old cost-plus pricing structures are leaking margin and capping revenue potential because they are not
providing enough price flexibility.
For example, in the past 5 years; and especially since COVID, Australian businesses have been experiencing intense
pricing pressure and need more flexibility in their price structures. However, many existing pricing structures are riddled
with pricing errors and the cost-plus price-setting logic applied in structure is just too broad and simplistic. In short,
many price structures are awash with multiple price points for many items. Also, they have limited fences or tiers to
distinguish the value of products within categories.In this article, we will explain what a pricing structure is and how a
good pricing structure can dramatically help your sales teams improve pricing decisions in the following ways:

Page 24 of 34
SUBJECT CODE: MKTG.107
MODULE NO: Module 9
SUBJECT NAME: PRICING STRATEGY
TOPIC: PRICE STRUCTURE AND MULTIPART PRICING

At the end of the lecture/discussion/week, the student should be able to:

 Understand Price Structure and Multipart Pricing
 Differentiate Pricing Structure and Pricing Strategy
 Know on how to Create a Pricing Structure

PART 1. LECTURE/DISCUSSION

PRICE STRUCTURES AND MULTIPART PRICING

PRICE STRUCTURE
A pricing structure defines and organizes prices for your company’s products and services. The
objective is to charge a rate that aligns with your pricing strategy while balancing profits with
what the market will bear to avoid over- or under-charging customers.

A pricing structure prices products and services so that it makes sense to customers and gets
them to buy. For instance, you might offer a discount when customers buy more than one
product.

Several pricing structures exist. These are common ones:

 Flat rate: You choose one price for your offerings and you’re done. This works great when
you have a single product or service, or you charge an hourly rate that doesn’t change.
 Tiered pricing: This is a popular option. You set different product prices based on value.
The greater the value, the higher the price. An example is a software product. The basic
version is one price, and if you want more features, you upgrade and pay a higher price.
 Pay per use: This pricing structure charges based on how much of your offering is used. A
typical example is electricity. The more electricity you consume, the more you pay.
 Razor-blade pricing: This approach is called "razor-and-blade" because razor blades are an
example of how the model works. You sell a core product, the razor, then make money
from selling complementary products: the razorblades.

Prices are dynamic. Your competition may change prices. Your costs increase as suppliers
charge more. The pricing structure keeps you organized in this dynamic environment.

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A robust pricing structure is important to maximize sales and profit. If your pricing structure is
too simplistic or lacks price controls, particularly in B2B sales, you end up with prices all over the
map.

I’ve seen firsthand how sales reps abandon the price list to make up their own pricing. In these
cases, the business loses money because of unnecessary discounting and lack of price fences.

Pricing structure vs. pricing strategy: What’s the difference?

Pricing strategy is the overarching approach used to set pricing for a company’s products and
services. It doesn’t define actual price points, but the pricing structure is a consequence of the
strategy, and it’s where you set the price customers see.

You must first set a pricing strategy before you can build a price structure since the former
dictates the latter. Netflix is a good pricing structure example. It uses a value-based pricing
strategy to lure customers from cable television subscriptions.

Netflix applies a tiered subscription pricing structure to articulate its pricing strategy. The tiered
pricing enables customers to choose an option based on their needs, such as selecting a higher
priced plan for high-definition picture quality. Netflix uses a free trial as a carrot to get sign-ups.

How to set up a pricing structure

Pricing structures can be simple or complex. Start with a simple approach to avoid becoming
overwhelmed by the process, especially if you sell several products or services. Then evolve your
pricing. These steps show you how.

Step 1: Do your homework

Before you tackle pricing, do your homework. Research and understand your target customers,
the competition, and the marketplace. Depending on the industry you operate in, other factors
may affect price, such as local laws and industry regulations.

Business costs are the other research area. These costs aren’t limited to the production of your
goods or services. Rent, employee payroll, taxes, Sales and marketing, and other factors
contribute to your costs.

This information influences your pricing strategy. Once a strategy is in place, you’re ready to
build your pricing structure.

Tips for doing your homework

This first step is the foundation for effective pricing. These tips can help.

 Know your customers: No matter your product or service, you must identify your target
audience and learn as much about them as possible. This includes their income level and
why they are attracted to your offerings. Do this through customer surveys, reading

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 research online, or simply asking your customers for feedback, not just about your
business, but also what they think of competitor prices and pricing structures.
 Examine competition: Look at competitors and dissect their pricing structures. Why are
they using that approach? Should you use the same? See what they typically charge for an
offering similar to yours. Check their website, visit their location, or call them. This
research ensures you’re not charging too much or using an overly complex pricing
structure, which can drive customers to competitors. It also identifies if you’re too far
below the market price, which eats into your profits.
 Understand the market: Your local market consists of several elements: your geography,
industry, and addressable audience. For example, a luxury car dealership’s business is
limited by the number of people with the income level to afford the cars who live nearby.
You want to know your market, including how it may evolve over time and what trends
can affect you later. Much of this information is available online, although some sources
may require you to purchase the data.

MULTIPART PRICE STRUCTURE

Defines the method by which total transaction prices are determined.–It structurally price-segments the
market.–It is the architecture around which the firm’s pricing mix is designed.–Structures change the reference price
itself and therefore the expectations of customers . Copyright © 2022. Course Hero, Inc. Multipart tariffs constitute
another widely practiced technique of nonlinear pricing, under which the price of each unit may vary with the total
number of units purchased. To some degree, multipart tariffs can be viewed as an enhancement of the bundling
marketing strategy analyzed earlier in Section 4.1. By an enhancement we mean that instead of limiting the pricing
strategy to a fixed price for a certain number of goods bundled together in a single package, multipart tariffs consist of a
fixed fee and per-unit prices that may vary with the amount consumed.

Multipart tariffs in general, and two-part tariffs in particular, are widely used. Here is a list of examples with which the
reader should be familiar:

Phone companies generally charge a fixed monthly fee for maintaining a line connection and in addition charge for each
minute of each phone call.

Credit card companies charge merchants and often consumers fixed annual fees in additional to per-transaction fees.

Membership discount retailers, such as shopping clubs, require paying an annual membership fee before consumers are
allowed to enter the store (and then pay separately for each item they actually buy).

Bars and nightclubs tend to collect a “cover” charge in addition to charging for each drink separately.

Amusement parks tend to charge an entrance fee in addition to charging for each ride separately.

How to Create a Pricing Structure

1. Understand how to create value for different customer segments. ...
2. Develop appropriate price and buyer fences. ...
3. Check if your pricing structure is commercially viable. ...
4. Strategically unbundle value when necessary. ...
5. Make sure the features and services align with the market and customer base.

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SUBJECT CODE: MKTG.107
MODULE NO: Module 10
SUBJECT NAME: PRICING STRATEGY
TOPIC: ADD-ONS, ACCESSORIES, AND COMPLEMENTARY PRODUCTS

At the end of the lecture/discussion/week, the student should be able to:

 Understand Add-ons, Accessories, and Complementary Products
 Know on how to Influence price Levels in Add-on Price Structure

PART 1. LECTURE/DISCUSSION

ADD-ONS, ACCESORIES, AND COMPLEMENTARY PRODUCTS

Surround your main product with complementary products (e.g. sauces, accessories, add-ons) to attract more attention
to it and increase sales.

The more complex and varied the assortment of complementary products (from flavors to colors, to different shapes),
the better

Effects
When a main product (e.g. hummus) is surrounded by complementary products (e.g. pita bread, carrots, dipping chips),
we will pay more attention to the assortment and are more likely to buy the main product.

This effect also works if we don’t see the main product yet (e.g. it’s in a freezer, or you need to scroll down the page).
Complementary products commonly associated with a product (e.g. hotdog condiments), can trigger our search for the
main product (e.g. hotdogs).

The larger and more varied the display of complementary products, the stronger the effect. Particularly if they are
different colors and shapes (e.g. orange carrots, red bell peppers, a loaf of sourdough bread, flat pita bread).
© 2022 Thomas McKinlay

Why would a business create a complementary product instead of building those complementary features into the
existing product?

Increased efficiencies. When executed properly, complementary partnerships can make it easier for participating brands
to produce products and services faster with better quality control standards, at more cost-effective prices

A complementary strategy can be defined as any organizing activity which recruits external elements to reduce cognitive
loads. The external elements may be our fingers or hands, pencil and paper, movable icons, counters, measuring
devices, or other entities in our immediate environment.

ADD-ON PRICE STRUCTURE

A price structure where further modules or products can be added onto the base product to deliver superior value to
the customer. The transactional price within an add-on price structure is the sum of the individual unit prices. Add-on
pricing is suggested when there is significant demand heterogeneity in multiple dimensions.

he price that a customer pays for a product or service is made up of a number of elements. The basic price comes from
your costs plus your profit. But then further costs may need to be added, such as for tax, tips, storage, packing, shipping,
recycling, and so on. A question hence arises: do you include such costs in a single price, or do you separate out some or
all of such add-on costs?

Offering a single price makes the effort of calculating true costs easier. Using add-on costs makes the basic price seem
cheaper, but then adds complexity that could be accepted (if the basic price has already caused closure on the purchase
decision) or could make the potential customer walk away (if they see this calculation as too much effort).

Add-on pricing is analyzed, among others, by Lal and Matutes (1994), Verboven (1999), Ellison (2005), and Johnson
(2017). For instance, Ellison (2005) proposes a model in which add-on pricing enables firms to more effectively price
discriminate between high-demand and low-demand consumers. Johnson (2017) considers an asymmetric duopoly
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similar to ours where one large firm carries a full portfolio of products while the other carries an incomplete, smaller one

Example

It is common in restaurants within a country to not show tax on its menus, and not automatically add tips. One
restaurant decides to buck this convention, clearly announcing prices as 'including tax and service charge' and marketing
this as 'making life easier for you'.

An internet company declares 'free shipping', while actually including shipping costs within stated pricing. © Changing
Works 2002-2022

PRICE SEGMENTATION IN ADD ON PRICE STUCTURE

Price segmentation involves charging different prices to different customers for a product or service that
is the same or similar. ... Customers can be segmented for reasons such as volume, service offering, time of
purchase, and location.

INFLUENCE TO PRICE LEVELS IN ADD-ON PRICE STUCTURE

The main determinants that affect the price are:
 Product Cost.
 The Utility and Demand.
 The extent of Competition in the market.
 Government and Legal Regulations.
 Pricing Objectives.
 Marketing Methods used.
In this short guide we approach the three major and most common pricing strategies: Cost-Based
Pricing. Value-Based Pricing. Competition-Based Pricing.

https://www.netrivals.com › resources › guides › 3-major

SUBJECT CODE: MKTG.107

MODULE NO: Module 11
SUBJECT NAME: PRICING STRATEGY
TOPIC: VERSIONING
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At the end of the lecture/discussion/week, the student should be able to:
 Understand what is Versioning?
 Know What is benefit of version control?

PART 1. LECTURE/DISCUSSION

VERSIONING
Versioning is the creation and management of multiple releases of a product, all of which have the same general
function but are improved, upgraded or customized. The term applies especially to operating systems
(OSs), software and Web services. Version control is the practice of ensuring collaborative data sharing and editing
among users of systems that employ different versions of a product. The terms "versioning" and "version control" are
sometimes used interchangeably even though their technical meanings are different.

In software versioning, subsequent releases of a specific product receive numerical identifiers consisting of two or three
numbers separated by periods. The first number, called the major number, is increased when there are significant
improvements or changes in functionality. The second number, called the minor number, is incremented when there are
minor feature changes or significant fixes. The third number, if it exists, is called the revision number. It is added or
increased when minor bugs are eliminated. All Rights Reserved, Copyright 2006 - 2022, TechTarget

What is the purpose of versioning?

Versioning involves the production of different models of the same product, which are each then sold at different price
points. Different models or versions of a product are most compatible when there are high fixed costs but low variables
costs with which to modify the product at different levels.

What is an example of versioning?

An example of versioning is found in the airline industry. Airline companies usually provide two or three levels of seats,
such as economy class seats, business class seats, and first-class seats. The first-class tickets are the most expensive and
they offer customers the highest quality service.

https://saylordotorg.github.io › s05-03-second-degree-pri..

What is benefit of version control?

Version control enables the current team to analyze the deletion, editing, and creation of datasets made since the
original copy. It brings clarity to the development of the software. It ensures that different versions of the document are
distinguishable from each other. So, it is easy to identify the latest version

PRICE SEGMENTATION WITH VERSIONING

Versioning means you develop a lowest-cost base price model that captures your most price sensitive customers while
ensuring tolerable margins. The twist is you then offer better-featured versions of your product at higher prices (and
margins) for less price sensitive customers.

Japanese and Korean car manufacturers do this all the time. Even today they offer base models with no air conditioning
or radios. And even that can have a twist! High-end carmakers like Ferrari, BMW, and Porsche often charge more for
special edition “lightweight” cars without AC or radios.

Versioning makes proper pricing an easy undertaking.

First, since you’re offering different prices to different people, your customers will self-select their own category (and
often switch categories). Thus it’s simple to segment your market.

Next, develop a variable pricing structure that captures the lowest “acceptable” price sensitive customer while offering
higher-end offerings for less price sensitive customers. You’ll soon find (as any car dealer knows) that even the most
price sensitive customer will often upgrade or buy accessories/options.

Two quick examples:

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You can purchase a new brand-name, large-screen TV on eBay for less than the cost for most resellers. An eBay director
told me online stores were selling TVs at their cost in the hopes of selling more profitable accessories, like stands or wall
mounts. In other words, they’re using price versioning.

I know of a bike store in the Midwest that only builds custom bicycles. They price every component and the labor
involved the same, regardless of the bike being built. Yet few, if any, of their customers are price sensitive — buyers of
“custom” anything seldom are. This is where versioning can help. I estimated that if they charged a little more for
higher-end parts (and thus greater profit margins) they could put an additional $1,000 in their pockets. That’s a lot for a
bike shop owner. Copyright © 2022 AllBusiness.com All Rights Reserved.

INFLUENCE ON A VERSIONING STRATEGY

The term "speculative inventory" can mean different things, but in general, it refers to inventory that a business obtains
and holds in anticipation of future demand, rather than to meet current demand. "Spec inventory" is most commonly a
cost-saving measure, though businesses also use it to get ahead of the market.

Inventory Costs

A company's inventory is the goods it has available for resale. For a retail store, for example, inventory is simply the
store's stock. For a home builder, inventory is the houses it has completed or nearly completed but hasn't yet sold. For a
manufacturer, inventory includes both finished goods ready for sale and "work in process" -- products still being
assembled. All inventory comes at a cost to the business: A retailer buys from a producer or wholesaler, for example,
while a manufacturer has to buy materials and pay workers to assemble goods

MIXED VERSIONING AND ADD-ON PRICE STRUCTURE

Information goods such as computer software or electronic newspapers can be provided by firms at a low marginal cost,
while in many cases large capital outlays are required to produce their first unit. The substantial setup cost is thereby
mainly driven by the cost of developing the top quality product. Having established this ìflagshipî product, a firm can
degrade it or in other ways modify it, and in this way create a multitude of products at a small ìversioningî cost. Finding
optimal versioning strategies for information goods is becoming increasingly important for Internet commerce, as low
distribution costs and newfound customer intimacy render intricate second-degree price discrimination strategies
feasible.

SUBJECT CODE: MKTG.107

MODULE NO: Module 12
SUBJECT NAME: PRICING STRATEGY
TOPIC: BUNDLING

At the end of the lecture/discussion/week, the student should be able to:

 Understand what is Bundling?
 Discuss the Key Takeaways of bundling

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PART 1. LECTURE/DISCUSSION

BUNDLING
In marketing, product bundling is offering several products or services for sale as one combined product or service package. It
is a common feature in many imperfectly competitive product and service markets. Bundling is when companies package
several of their products or services together as a single combined unit, often for a lower price than they would charge
customers to buy each item separately.

KEY TAKEAWAYS

Bundling is a marketing strategy where companies sell several products or services together as a single combined unit.

The bundled products and services are usually related, but they can also consist of dissimilar items which appeal to one
group of customers.

Bundled products are typically offered at discounts to stimulate demand, lifting revenues often at the expense of profit
margins.

Companies occasionally use pure bundling strategies, rolling several products or services into one item that can only be
purchased as a complete package.

Understanding Bundling

Bundling is a marketing strategy that facilitates the convenient purchase of several products and/or services from one
company. These bundled products and services are usually related, but they can also consist of dissimilar items which
appeal to one group of customers.

Many companies produce and supply multiple products or services. They must decide whether to sell these products or
services separately at individual prices or in packages of products, or bundles, at a "bundle price."

Price bundling plays an increasingly important role in many verticals, such as banking, insurance, software, and
automotive. In fact, some organizations devise entire marketing strategies based on bundling. Typical examples of
bundling include option packages on new automobiles and value meals at restaurants.

In a bundle pricing scheme, companies sell the bundle for a lower price than would be charged for items individually.
Offering discounts can stimulate demand, enabling companies to perhaps sell products or services they otherwise had
difficulty offloading and generate a greater volume in sales. Over time, this approach might even help to cancel out
sacrifices in per-item profit margins—selling an item for less means squeezing less profit from it.

Not all providers will mention bundling as an option to their customers, so it is important to check whether it is a
possibility, particularly as bundled services often save consumers money.

Bundling Example

If you have two insurance policies (home and auto) through two separate companies, you might be able to bundle both
policies together using only one company and reduce the total monthly payments. Bundling can also be used to switch
several payments into one, making bill payments easier, even if it doesn't save money.

Mixed Bundling vs. Pure Bundling

Bundling usually consists of giving consumers an option to buy a set of items together as a package at a lower price than
what they would pay to buy them all individually, in a process known as mixed bundling. However, there also exists an
alternative, rarer form of this strategy called pure bundling.

Pure bundling does not give customers the option to buy items separately. An item that consists of several products or
services must be bought as one or not at all. Examples include Microsoft Corp.’s Office 365 software and television
channel plans—cable providers often offer packages, meaning customers cannot just pick and choose which channels
they want to pay for.

PRICE SEGMENTATION WITH BUNDLING In a bundle pricing, companies sell a package or set of goods or
services for a lower price than they would charge if the customer bought all of them separately. Common examples
include option packages on new cars, value meals at restaurants and cable TV channel plans. Pursuing a bundle pricing
strategy allows you to increase your profit by giving customers a discount.

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Based on Consumer Surplus
Bundle pricing is built on the idea of consumer surplus. Every customer has a price that he is willing to pay
for a particular good or service. If the price you set is equal to or lower than what the customer is willing to
pay, the customer will buy, as he considers the price a bargain. The difference between what the customer
pays and what the customer was willing to pay is known in economics as the consumer surplus. Bundle
pricing is an attempt to capture more of your customers' consumer surplus.

Personalized Pricing
An example: Your car wash offers two services, exterior cleaning and interior cleaning. Using market
research and your own experience, you've concluded that there are two primary groups of customers. ByCam
MerrittUpdated March 04, 2019

STRATEGIC BUNDLING
What is bundle pricing strategy?
Price bundling, also product bundle pricing, is a strategy that retailers use to sell lots of items at
higher margins while providing consumers a discount at the same time. ... Bundling is
extremely common in e-commerce and retail, and you'll often see product bundles on cheap goods or
discount items
https://www.omniaretail.com › blog › what-is-bundle-p...

TRADEOFFS IN ADD-ON, VERISON AND BUNDLE PRICING

A product for everybody is a product for nobody”

The first and foremost factor for business success is to try registering your brand’s name into a consumer’s mind. The
way to enter their mind is to make them aware that your brand means only one thing. BMW means driving experience.
Volvo means safety. Choosing a unique position in the minds of customers ensures a long lasting business.
Unfortunately, choosing a unique activity or a differentiation is not enough to guarantee a sustainable competitive
advantage as competing brands could easily copy or imitate those value propositions and unique activities. But they
would find it difficult to copy one thing — The Trade-offs.Trade-offs are the activities a brand chooses not to do, the
activities that would be incompatible with the brand’s vision and core values.

Without trade-offs, there would be no choice and thus no need for strategy — Michael Porter.

The desire to grow puts enormous pressure on the business owners and they make some compromises. They add a
series of incremental changes which lead them to lose their way. So, it is important to understand what our business
should not do.Shah MohammedJun 21, 2019.

A SUMMARY OF PRICING STRATEGIES

One of the most common questions asked by farmers market vendors is, “How do I set prices for my products?”
Generally, prices at farmers markets are set locally and are often higher than similar products available at local grocery
stores. Farmers market advocates suggest this disparity is crucial to differentiate the farmers market product from
wholesale produce. The two most important factors in setting your prices are knowing your cost of production and
knowing what your product is selling for at other local retail outlets. Knowing Your Cost of Production For smaller
producers, knowing your cost of production may be as simple as once a year, add up all your production and marketing
expenses (don’t forget a decent wage for your labor) and divide them by your production area in some unit of
measurement that makes sense to you (acres, beds, square feet). Divide that number by the pounds of marketable
produce you harvest from each of your units, and you’ll have at least a crude version of your cost of production per
pound. Larger growers should be able to identify production costs for different crops and fields, and then divide those
costs by the total marketable yield. Key Concept: The most common error in calculating production costs by both large
and small growers is to discount the value of the time spent producing the crop. Always assume a reasonable wage and
realistic time estimates for your labor. Pricing Strategies When you have a specific idea of the value of your products and
a rough idea of how much your goods cost to produce, you are ready to refine your pricing strategy: pricing for profit,

Page 33 of 34
pricing for value or pricing against competition. A. Pricing for Profit Every retailer should be pricing for profit. As a
farmers market vendor, your task in pricing for profit is a bit more complex than a grocer or restaurateur who is
purchasing and reselling their product. The challenge for farmers market sellers is to determine how much it costs to
grow and deliver the product to market. Once you know your cost of production and delivery to market, you can
accurately determine the price you need to receive to cover your costs. If you search online, you will find numerous
tools available to help you determine your cost of production, Key Concept: Knowing your entire cost of production —
including delivery costs and the value of your own labor used in growing and selling — is the most important part of
setting a price for your product in a farmers market or any other retail setting. Gut feelings cannot replace this
knowledge. B. Pricing for Value Pricing for value refers to a strategy used to sell more quantity by giving price breaks
when more product is purchased. For example, pumpkins might be priced at “$4 each or 3 for $10.” Pricing for value
most often occurs in situations when the vendor wants to “move” more product by offering quantity discounts.
However, sellers must know their cost of production to effectively price for value. If it costs $3.50 to grow each pumpkin
and you are offering “3 for $10” to sell more, you are actually losing money on each of those pumpkins! Value pricing is
often used by farmers market vendors who sell larger volumes to restaurants or other regular customers. Value pricing
can also be used at the end of the market day if the vendor does not wish to return home with produce. C. Pricing
Against Competition Many farmers markets discourage vendors from purposefully undercutting each other on prices.
This is especially relevant to markets that allow reselling — a vendor might be able to buy bulk wholesale produce at a
cost lower than what the produce can be grown locally. Differentiating your product from your competition can help
address this problem. Furthermore, the reputation you develop for offering quality packaging, presentation, and high-
quality products will allow you to maintain a higher price. The best strategy for pricing against your competition is to
know your cost of production. Loss Leaders Products that are purposefully priced below their cost of production or
purchase value are referred to as ‘loss leaders.’ You might choose to offer certain products as loss leaders when those
products attract customers to your stand, especially if the customer is then led to also purchase other, more profitable
items. Key Concept: Price wars are never won! Successful businesses price products and services to generate a profit!
Price is not the only reason that people buy… but it sure is an important one!

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