Pricing: Understanding and Capturing Customer Value
Price: Is the amount of money charged for a product or a service.
Price is the sum of all the values that customers give up to gain the benefits
of having or using a product or service
Price has been the major factor affecting buyer choice
Is the only element in the marketing mix that produces revenue
A small percentage improvement in price can generate a large percentage increase in profitability
Major Pricing Strategies
Customer perceptions of the product’s value set the ceiling for prices.
Product costs set the floor for prices
Customer Value-based Pricing:Setting price based on buyers’
perceptions of value rather than on the
seller’s cost.
Price is considered along with all
other marketing mix variables before the marketing program is set.
The company designs what it considers to be a good product, adds up the costs of making
the product, and sets a price that covers costs plus a target profit
Cost Based PricingSetting prices based on the costs for
producing, distributing, and selling the
product plus a fair rate of return for effort
and risk.
Although costs
are an important consideration in setting prices, cost-based pricing is often product driven
Good- Value Pricing: Offering the right combination of quality
and good service at a fair price.
this has involved introducing less-expensive versions of established,
brand-name products
In other cases, good-value pricing has involved redesigning existing brands to offer more quality for a given price or the same quality
for less.
Value- added Pricing:Attaching value-added features and
services to differentiate a company’s
offers and charging higher prices.
Experience curve (learning curve)
The drop in the average per-unit production cost that comes with accumulated production experience.
Types of Costs:
Fixed costs (overhead)
Costs that do not vary with production or sales level.
Variable costs
Costs that vary directly with the level of production.
Total costs
The sum of the fixed and variable costs for any given level of production.
Cost-plus pricing (markup pricing)
Adding a standard markup to the cost of the product.
Break-even pricing (target return pricing)
Setting price to break even on the costs of making and marketing a product or setting price to make a target return.
Competition-based pricing
Setting prices based on competitors’ strategies, prices, costs, and market offerings.
Internal factors affecting pricing include the company’s overall marketing strategy, objectives, and marketing mix, as well as other organizational considerations. External factors include the nature of the market and demand and other environmental factors.