9.1 Major Pricing Strategies Flashcards
What are the two extreems of the price a company puts on a product/service?
The price the company charges will fall somewhere between one that is too low to produce a profit and one that is too high to produce any demand.
What sets the ceiling for the price of a product/service?
Customer perceptions of the product’s value set the ceiling for its price. If customers perceive that the product’s price is greater than its value, they will not buy the product. Likewise, product costs set the floor for a product’s price. If the company prices the product below its costs, the company’s profits will suffer.
What internal and external factors must a company consider when setting its price between the two extremes?
In setting its price between these two extremes, the company must consider several external and internal factors, including:
Competitors’ strategies and prices.
The overall marketing strategy and mix.
The nature of the market and demand.
The three major pricing strategies
Customer value-based pricing
Cost-based pricing
Competition-based pricing
What is customer value-based pricing?
Customer value-based pricing uses buyers’ perceptions of value as the key to pricing. It involves understanding how much value consumers place on the benefits they receive from a product and setting a price that captures that value.
How does value-based pricing differ from cost-based pricing?
Value-based pricing begins with analyzing consumer needs and value perceptions, and the price is set to match perceived value. In contrast, cost-based pricing is product-driven, where the company designs a product, adds up the costs, and sets a price that covers costs plus a target profit.
What is the process of value-based pricing?
The company first assesses customer needs and value perceptions, sets its target price based on customer perceptions of value, and then makes decisions about what costs can be incurred and the resulting product design
Is “good value” the same as “low price”?
No, “good value” is not the same as “low price.” A product can offer good value even at a high price if customers perceive its benefits as being worth the cost.
Why is measuring the value customers attach to a product challenging?
Measuring the value customers attach to a product is challenging because value is subjective and varies for different consumers and situations. Assigning value to non-tangible measures of satisfaction, such as taste or environment, is difficult.
How can companies measure customers’ perceived value?
Companies can measure customers’ perceived value by asking consumers how much they would pay for a basic product and for each added benefit or by conducting experiments to test the perceived value of different product offers.
What are the consequences of charging too much or too little for a product?
If a seller charges more than buyers’ perceived value, the company’s sales will suffer. If the seller charges less, its products will sell well, but they will produce less revenue than they would if priced at the level of perceived value.
What are the two types of value-based pricing?
The two types of value-based pricing are good-value pricing and value-added pricing.
Considerations in Setting Price (Figure)
9.2: Value-based Pricing vs. Cost-based Pricing
What is good-value pricing?
Good-value pricing is a strategy of offering the right combination of quality and good service at a fair price, often involving introducing less-expensive versions of established brand name products or new lower-price lines.
