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Block 1: Session 7 - Pricing (Factors that affect pricing (Cost,…
Block 1: Session 7 - Pricing
Three types
Cost-based
Total cost approach
How many units need to be sold at different price levels to cover full cost
Break-even analysis
Limitations
If sales fall, prices would need to be raised to compensate
Usefulness
Highlights costs and price required for initial profit
Direct/marginal cost pricing
Only taking account of costs that increase as sales go up
Uses
Service offereing where it would otherwise go unused
Example - lowering hotel room prices
Cost-plus
Adding a percentage for profit to the product cost
Advantages
Fair
Weaknesses
Doesn't take into account customer demand or competitor prices.
Competitor-based
Costs set in relation to customers - 'going-rate price'
When comparing - Kotler and Armstrong's 3 questions
Another type = competitive bidding
Customer-based
Setting the price of an offering on its value to customers
Demand pricing
Good-value pricing
Value-added priving
Psychological-based pricing
Meeting customers needs has to be considered early
Factors that affect pricing
Cost
Competition
value perceptions
Objectives
buyers perceptions
Marketing mix
STEEPLE factos
Who set and influences the prices in the organisation
See book for different theorists ideas
Product mix pricing
5 types (Kotler and Armstrong, 2016)
Product line pricing
Optional-product pricing
Captive-product pricing
By-product pricing
Product bundle pricing
Need to maximise profits across the overall product mix
Pricing in business markets (B2B)
Economic value to the customer (EVC)
Types
Trade or function discounts
Quantity discounts
Cash discounts
Seasonal discounts
Allowances
Approaches for information pricing decisions (Grigsby, 2015) - 4 approaches
General survey
Price sensitive analysis
Conjoint analysis
Elasticity modelling
Kotler and Armstrong (2016) - 5th approach
Experimentation
Ethical considerations
Dynamic pricing
Adjusting price offered according to needs and characteristics of individual buyers
Segmented pricing
Different prices based on customer, product and location
Super-sized pricing
Greater quantity at lower unit price
Types that can cause ethical concerns