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PRICING PRODUCTS (WHAT IS PRICE? (Cost-Based Pricing (Benefits (sellers…
PRICING PRODUCTS
WHAT IS PRICE?
Definition
Amount of money charged for a product or service.
The only element in marketing mix: produces revenue
Most flexible marketing mix elements
Considerations in Setting Price
Product costs
Price floor
No profits below this price
Other internal & external considerations
Customer perception of value
Price ceiling
No demand above this price
Value-based pricing Vs Cost-based pricing
Cost-based pricing
Determine product costs
Set price based on cost
Design a good products
Convince buyers of product's value
Value-based pricing
Assess customer needs & value perceptions
Set target price to match customer perceived value
Determine costs that can be incurred
Design product to deliver desired value at target price
Cost-Based Pricing
Types of Costs
TC= FC + VC
Product driven
Benefits
sellers are certain about costs
price competition is minimized
buyers feel it is fair
Disadvantages
ignores demand & competitor prices
Value-Based Pricing
Buyers perceptions value > seller's cost
Types
Good-value pricing
:check:quality
:check:service
fair price
High Low
high prices on everyday basis
running frequent promotions
to lower temporarily on selected items
EDLP
everyday low price
few/no temporary price discounts
charge a constant
Value-added pricing
attaches value added features & services
to differentiate the companies offers
high price
eg : Apple
Break-Even Pricing/ Target Profit Pricing
TC=TR
Not losing money
No profit/loss
Competition-Based Pricing
settings prices based on competitiors
strategies
costs
prices
market offerings
OTHER INTERNAL &EXTERNAL CONSIDERATIONS AFFECTING PRICE DECISIONS
Impact of Marketing Strategy on Pricing
Positioning on high price
Pricing Objectives
Stabilize the market
Keep loyalty & support of resellers
Prevent competition from entering market
Avoid government intervention
Profitably retain existing customers
Help sales of other products
Attract new customers
Target Costing
Competition
Market
Design
ensure price is met
Other Pricing Considerations
Organizational factors
The Market & Demand
Oligopoly
Monopolistic Competition
Pure Competition
Monopoly
Price Elasticity
Elastic
A small change in price affect the demand of the products/services
Inelastic
Increase in price does not affect the demand of the products
NEW-PRODUCT PRICING STRATEGIES
Market Skimming
Set initial high price for high revenue
Works when
Enough buyers
Competitors cannot charge lower price
Superior quality & image
Market Penetration
Set initial low price for high market share
Works when
Costs fall with large volume
Competition is kept out
Market is price sensitive
Low price can be maintained
PRODUCT MIX PRICING STRATEGIES
By-product pricing
Product bundle pricing
Captive-product pricing
Optional-product pricing
Product line pricing
PRICE ADJUSTMENT STRATEGIES
Psychological
References pricing
Promotional
Special-event pricing
Segmented
Customer-segment pricing
Product-from pricing
Geographic
FOB Origin
Uniform delivered
Zone
Basing point
Freight absorption
Discount & allowance
Trade-in allowances
Promotional allowance
Dynamic
International
PRICES CHANGES
Price Cut
Customer reaction
Inferior quality
Newer models coming
Price may come down further
Competitor reaction
Company wants larger market share
Company wants industry to reduce price & increase total demand
Why?
Falling demand
Boost sales
Excess capacity
Achieve lower costs through higher volume
Price Increase
Customer reaction
Superior quality
Must buy now
Company is greedy
Competitor reaction
Company knows market better
Company wants to be price leader
Why?
Cost inflation
Overdemand
PUBLIC POLICY & PRICING
Pricing Within Channels
Price Fixing : Illegal
Predatory Pricing : Illegal
Pricing Across Channel
Price Maintenance : Illegal
Deceptive Pricing : Illegal
Price Discrimination : Illegal