Second Sem | Chapter 1 Flashcards
is the value that is put to a product or service and is the result of a complex set of
calculations, research and understanding and risk-taking ability.
Price
takes into account segments, ability to pay, market conditions, competitor
actions, trade margins and input costs, amongst others. It is targeted at the defined customers
and against competitors.
Pricing strategy
Objectives of Pricing
Cost-plus pricing
Customer-driven pricing
Share-driven pricing
The most common pricing procedure because it carries an aura of
financial prudence, which means pricing every product or service to yield a fair return
over all costs, fully and fairly allocated.
Cost-plus pricing
Policy of letting pricing be dictated by competitive conditions.
Share-driven pricing
consistent with value-based pricing.
Customer-driven pricing
Disadvantage: It is impossible to determine a product’s unit cost before determining its
price because unit costs change with volume.
Cost-plus pricing
Its purpose is to price more profitably by capturing more value, not necessarily
by making more sales.
Customer-driven pricing
Trade-off forms:
● Willingness to lower price to exploit a market opportunity to drive volume.
● Willingness to give up volume by raising prices, which is a difficult decision.
Share-driven pricing
requires ensuring that products and services include just those features that
customers are willing to pay for, without those that unnecessarily drive up cost by more than
they add to value.
Strategic Pricing
Principles of strategic Pricing
Value-based
Proactive
Profit-driven
means that differences in pricing across customers and changes over
time reflect differences or changes in the value to customers.
Value-based
means that company evaluates its success at price management by what
it earns relative to alternative investments rather than by the revenue its generates
relative to its competitors
Profit-driven
means that companies anticipate disruptive events and develop strategies in
advance to deal with them.
Proactive
Its objective is profitability.
Strategic Pricing
Problems:
● Sophisticated buyers are rarely honest about how much they are actually willing
to pay for a product.
● There is even more fundamental problem with pricing to reflect customers’
willingness-to-pay.
Customer-driven pricing
Five levels of the strategic pricing pyramid
Value creation
Price structure
Price and value communication
Pricing policy
Price level
refers to the overall satisfaction that a customer receives from using a product or service
offering.
Value
represents the total cost savings or income enhancements that a
customer accrues as a result of purchasing a product.
Monetary value
refers to the many ways that a product creates innate satisfaction
for the customer.
Psychological value
is calculated as the price of the customer’s best alternative
(the reference value) plus the worth of whatever differentiates the offering from the alternative
(the differentiation value).
Product’s total economic value
Price setting should be an iterative and cross-functional process led by marketing that
includes several key actions:
- Set appropriate pricing objectives.
- Calculate price-volume trade-offs.
- Estimate the likely customer response by assessing the drivers of price sensitivity that are
unrelated to value.
Product – cost – price – value – customers
Product led
Customers – value – price – cost – product
Customer led
refers to rules or habits, either explicit or cultural, that determine how a company varies
its prices when faced with factors other than value and cost to serve that threaten its ability
to achieve its objectives.
Pricing policy
should be a straightforward activity.
Price level
one of the most challenging tasks for marketers
because of the wide variety of product types and communication vehicles.
Price and Value Communication
Most common price structure is a price per unit and is perfectly adequate for commodity
products and services.
Price stracture
Alternative Approaches to Value Creation:
Product led
Customer led
Value creation
Economic value
Offering design
Segmentation
Price stracture
Metrics
Fences
Controls
Price and value communication
Communication
Value selling tools
Pricing policy
Negotiation tactics
Criteria for discounting
Price level
Price setting
depends on the alternatives that the customers have available to satisfy the
same need.
Economic value
The value at the heart of pricing strategy is not use value, but is what economists call
exchange value or economic value.
the utility gained from the product.
economists call this as use value
