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13 views32 pages

Chapter #10 (1)

Uploaded by

Muhammmad Affan Imran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Principles of Marketing

Chapter 10

PRICING:
Understanding and Capturing
Customer Value
Pricing Concepts
Understanding and
Capturing Customer Value
Topic Outline

• What Is a Price?
• Customer Perceptions of Value
• Company and Product Costs
• Other Internal and External
Considerations Affecting Price
Decisions
What Is a Price?

Price is the amount of money charged for a


product or service. It is the sum of all the
values that consumers give up in order to
gain the benefits of having or using a
product or service.

Price is the only element in the marketing mix


that produces revenue; all other elements
represent costs
Factors to Consider When Setting
Prices
Customer Perceptions of Value

• Understanding how much value


consumers place on the benefits they
receive from the product and setting a
price that captures that value
Major Pricing strategies and
considerations
There are 3 major pricing strategies:
1. Customer value-based pricing
2. Cost-based pricing
3. Competition-based pricing
Difference between Cost-Based pricing
and Value-based Pricing
Factors to Consider When Setting
Prices
Customer Perceptions of Value

Value-based pricing uses the buyers’


perceptions of value, not the sellers
cost, as the key to pricing. Price is
considered before the marketing
program is set.
• Value-based pricing is customer driven
• Cost-based pricing is product driven
Factors to Consider When
Setting Prices
Customer Perceptions of Value

Value-Based pricing

1.Good-value pricing

2.Value-added pricing
Factors to Consider When
Setting Prices
Customer Perceptions of Value

1.Good-value pricing offers the right


combination of quality and good service to
fair price

Existing brands are being redesigned to offer


more quality for a given price or the same
quality for less price
Factors to Consider When
Setting Prices
Customer Perceptions of Value

a)Everyday low pricing (EDLP)


involves charging a constant
everyday low price with few or no
temporary price discounts

b)High-low pricing involves charging


higher prices on an everyday basis
but running frequent promotions to
lower prices temporarily on selected
items
Factors to Consider
When Setting Prices
Customer Perceptions of Value

2.Value-added pricing attaches value-added


features and services to differentiate offers,
support higher prices, and build pricing
power

Pricing power is the ability to escape price


competition and to justify higher prices and
margins without losing market share
Factors to Consider When
Setting Prices
Company and Product Costs

Cost-based pricing: Setting prices based on


the costs of producing, distributing and
selling the product plus a fair rate of return
for effort and risk
Factors to Consider When
Setting Prices
Cost-Plus Pricing (Markup pricing)
• Cost-plus pricing adds a standard markup
to the cost of the product
• Benefits
– Sellers are certain about costs
– Prices are similar in industry and price competition is
minimized
– Consumers feel it is fair
• Disadvantages
– Ignores demand and competitor prices
Factors to Consider When
Setting Prices
Company and Product Costs
Types of costs

Fixed Variable Total


costs costs costs
Factors to Consider
When Setting Prices
Company and Product Costs

Fixed costs are the costs that do not vary with


production or sales level
• Rent
• Heat
• Interest
• Executive salaries
Factors to Consider When
Setting Prices
Company and Product Costs

Variable costs are the costs that vary with the


level of production
• Packaging
• Raw materials
Factors to Consider
When Setting Prices
Company and Product Costs

Total costs are the sum of the fixed and


variable costs for any given level of
production
Total cost= fixed cost +variable cost
Factors to Consider When
Setting Prices
Other Internal and External
Considerations
The Market and Demand
• Before setting prices, the marketer must
understand the relationship between
price and demand for its products
Factors to Consider When
Setting Prices
Other Internal and External
Considerations
• Customer perceptions of value set the
upper limit for prices, and costs set the
lower limit
• Companies must consider internal and
external factors when setting prices
Factors to Consider When
Setting Prices
Other Internal and External
Considerations

Organizational considerations include:


• Who should set the price
• Who can influence the prices
Factors to Consider When
Setting Prices
Other Internal and External
Consideration
The Market and Demand

Pure competition
Monopolistic competition
Oligopolistic competition
Pure monopoly
Factors to Consider When
Setting Prices
Factors to Consider When Setting
Prices
Other Internal and External Considerations
Competitor's Strategies

• Comparison of offering in terms of


customer value
• Strength of competitors
• Competition pricing strategies
• Customer price sensitivity
Factors to Consider
When Setting Prices
Other Internal and External
Consideration

Economic conditions

Reseller’s response to price

Government

Social concerns
New-Product Pricing Strategies
Pricing Strategies (chap 11)

• Market-skimming pricing
• Market-penetration pricing
New-Product Pricing Strategies
Market-skimming pricing is a strategy with high initial prices
to “skim” revenue layers from the market

• Product quality and image must support the price


• Buyers must want the product at the price
• Costs of producing the product in small volume should not
cancel the advantage of higher prices
• Competitors should not be able to enter the market easily
New-Product Pricing Strategies
Pricing Strategies
Market-penetration pricing sets a low initial
price in order to penetrate the market quickly
and deeply to attract a large number of
buyers quickly to gain market share
• Price sensitive market
• Low prices must keep competition out of the
market
Product mix
Pricing Strategies

Optional- Captive-
Product
product product
line pricing
pricing pricing

Product
By-product
bundle
pricing
pricing
Product Mix Pricing Strategies
Pricing Strategies

Product line pricing takes into account the


cost differences between products in the
line, customer evaluation of their features,
and competitors’ prices

Optional product pricing takes into account


optional or accessory products along with
the main product
Product Mix Pricing Strategies
Pricing Strategies

Captive-product pricing involves products that


must be used along with the main product
Price Mix Pricing Strategies
Pricing Strategies

By-product pricing refers to products with little


or no value produced as a result of the main
product. Producers will seek little or no profit
other than the cost to cover storage and
delivery.
Price Mix Pricing Strategies
Pricing Strategies

Product bundle pricing combines several


products at a reduced price

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