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Pricing: Understanding and Capturing Customer Value - Coggle Diagram
Pricing: Understanding and Capturing Customer Value
What is 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.
Price is the only element in the marketing mix that produces revenue; all other elements represent costs.
Price is also one of the most flexible marketing mix elements.
Major Pricing Strategies
Customer value-based pricing: Setting price based on buyers’ perceptions of value rather than on the seller’s cost.
Value-based pricing reverses this process.
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.
Fixed costs (overhead) do not vary with production or sales level.
Variable costs vary directly with the level of production.
Total costs sums the fixed and variable costs for any given level of production.
Experience curve (learning curve): drop in the average per-unit production cost that comes with accumulated production experience.
Cost-plus pricing (markup pricing): Adding a standard markup to the cost of the product.
Break-even pricing (target return pricing) sets 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
Target costing: Pricing that starts with an ideal selling price and then targets costs that will ensure that the price is met.
The Market & Demand
Pure competition
Monopolistic competition
Pure Monopoly
Oligopolistic Competition
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.
Price elasticity: A measure of the sensitivity of demand to changes in price.
The economy
Economic factors such as a boom or recession, inflation, and interest rates affect pricing decisions.