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Pricing Understanding and Capturing Customer Value - Coggle Diagram
Pricing Understanding and Capturing Customer Value
What is Price?
Prices can be changed quickly.
Price is the only element in the marketing mix that produces revenue; all other elements represent costs.
pricing is the number-one problem facing many marketing executives, and many companies do not handle pricing well. Some managers view pricing as a big headache, preferring instead to focus on other marketing mix elements.
Price
The amount of money charged for a product or service; the sum of the values that customers exchange for the benefits of having or using the product or service
Major Pricing Strategies
If customers perceive that the product’s price is greater than its value, they will not buy the product. 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.
Good-value pricing
Offering the right combination of quality and good service at a fair price.
Value-added pricing
Attaching value-added features and services to differentiate a company’s offers and charging higher prices.
Cost-based pricing
Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.
Types of cost
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.
Other Internal and External Considerations Affecting Price Decisions
The Market and Demand
Pricing in Different Types of Markets
Monopolistic competition
The market consists of many buyers and sellers who trade over a range of prices rather than a single market price.
Oligopolistic competition
The market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies.
Pure competition
The market consists of many buyers and sellers trading in a uniform commodity, such as wheat, copper, or financial securities.
Pure monopoly
The market consists of one seller.
Price Elasticity of Demand
Price elasticity
A measure of the sensitivity of demand to changes in price.
Analyzing the Price-Demand Relationship
Each price the company might charge will lead to a different level of demand.
Demand curve
A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged.
The Economy
Economic conditions can have a strong impact on the firm’s pricing strategies.
Economic factors such as a boom or recession, inflation, and interest rates affect pricing decisions because they affect consumer spending, consumer perceptions of the product’s price and value, and the company’s costs of producing and selling a product.
Organizational Considerations
Management must decide who within the organization should set prices.
In small companies, prices are often set by top management rather than by the marketing or sales departments.
In large companies, pricing is typically handled by divisional or product line managers.
Influence on pricing include sales managers, production managers, finance managers, and accountants.
Other External Factors
government
social concerns
Overall Marketing Strategy, Objectives, and Mix
A firm can set prices to attract new customers or profitably retain existing ones. It can set prices low to prevent competition from entering the market or set prices at competitors’ levels to stabilize the market.
Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective integrated marketing program.
If the company has selected its target market and positioning carefully, then its marketing mix strategy, including price, will be fairly straightforward.
Price is a crucial product-positioning factor that defines the product’s market, competition, and design.
Target costing
Pricing that starts with an ideal selling price and then targets costs that will ensure that the price is met.