Chapter 10: Marketing:Pricing: Understanding and Capturing Customer Value Flashcards
Price Definition:
it is the amount of money charged for a product or service
More broadly it is the sum of all the values that customers exchange for the benefits of having or using the product or service
Pricing: No matter what the state of the economy, companies should sell value, not price.
Considerations in Setting Price
Minimum Price…
Maximum Price…
Major Pricing Strategies
Value-based pricing
Value-based pricing uses the buyers’ perceptions of value rather than
the seller’s cost.
▪ Value-based pricing is customer driven.
▪ Cost-based pricing is product driven.
▪ Price is set to match perceived value.
Value-Based Pricing versus Cost-Based Pricing
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Major Pricing Strategies
Good-value pricing
▪ Good-value pricing is offering just the right combination
of quality and good service at a fair price.
Major Pricing Strategies
Everyday low pricing (E D L P)+ high-low pricing
Everyday low pricing (E D L P) involves charging a constant
everyday low price with few or no temporary price discounts.
High-low pricing involves charging higher prices on an
everyday basis but running frequent promotions to lower
prices temporarily on selected items.
Major Pricing Strategies
Value-added pricing
Value-added pricing attaches value-added features and
services to differentiate a company’s offers and thus their
higher prices.
Major Pricing Strategies
Competition-Based Pricing
Competition-based pricing is setting prices based on
competitors’ strategies, costs, prices, and market offerings.
Major Pricing Strategies
Cost-Based Pricing
Cost-based pricing sets prices based on the costs for
producing, distributing, and selling the product plus a fair
rate of return for effort and risk.
Fixed costs are the costs that do not vary with production or
sales level.
* Rent
* Heat
* Interest
* Executive salaries
Variable costs vary directly with the level of production.
* Raw materials
* Packaging
* Marketing expenses
Total costs are the sum of the fixed and variable costs for
any given level of production.
Major Pricing Strategies
Cost-plus pricing
Cost-plus pricing is also known as markup pricing. It’s a pricing method where a fixed percentage is added on top of the cost it takes to produce one unit of a product (unit cost). The resulting number is the selling price of the product.
Benefits
– Sellers are certain about costs.
– Price competition is minimized.
– Buyers feel it is fair.
* Disadvantages
– Ignores demand and competitor prices
overall Marketing Strategy, Objectives, and Mix
Price is a crucial product-positioning factor that defines the product’s market, competition and design.
The Market and Demand
Price Elasticity of Demand
Price elasticity is a measure of the sensitivity of demand to
changes in price.
▪ Inelastic demand is when demand hardly changes with a
small change in price.
▪ Elastic demand is when demand changes greatly with a small
change in price
The Economy and Other External Factors
▪ Economic conditions (inflation)
▪ Reseller’s response to price (supermarkets)
▪ Social concerns (heating prices)
▪ Government (excise taxes)
