Scribd
Upload
90 views15 pages

Introduction To Marketing: Pricing: Understanding and Capturing Customer Value

This document discusses pricing strategies and factors for marketers to consider. It defines price and explains that price produces revenue while other marketing mix elements are costs. The document outlines major pricing strategies such as customer value-based pricing, cost-based pricing, and competition-based pricing. It also discusses setting prices for new products using either market skimming or market penetration strategies. Overall, the key aspects of pricing covered are determining customer value, considering costs, analyzing competitors, and coordinating price with other marketing mix elements.

Uploaded by

Mustakim Mehmud Toha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
90 views15 pages

Introduction To Marketing: Pricing: Understanding and Capturing Customer Value

This document discusses pricing strategies and factors for marketers to consider. It defines price and explains that price produces revenue while other marketing mix elements are costs. The document outlines major pricing strategies such as customer value-based pricing, cost-based pricing, and competition-based pricing. It also discusses setting prices for new products using either market skimming or market penetration strategies. Overall, the key aspects of pricing covered are determining customer value, considering costs, analyzing competitors, and coordinating price with other marketing mix elements.

Uploaded by

Mustakim Mehmud Toha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 15

INTRODUCTION TO

MARKETING
Pricing: Understanding and
Capturing Customer Value
Topics to be covered:

 What is a Price?
 Major Pricing Strategies and Factor to Consider
 Customer Value-Based Pricing
 Cost-Based Pricing
 Competition-Based Pricing
 Overall Marketing Strategy, Objectives, and Mix
 New Product Pricing Strategies
What is a Price?

 Price Defined: The amount of money charged for a product or service,


or the sum of values that customers exchange for the benefits of
having or using the product or service.
 The following aspects of price as one of the most important elements
of marketing mix are noteworthy:
 Though nonprice factors have gained increasing importance in
recent decades, price still remains one of the most important
elements determining the firm’s market share and profitability.
 Price is the only element in the marketing mix that produces
revenue; all other elements represent costs.
 Price is one of the most flexible marketing mix elements.
Major Pricing Strategies and Factors to Consider

 The price the company charges will fall somewhere between one that
is too high to produce any demand and one that is too low to produce
a profit.

Whereas customer-value perceptions set the price ceiling, costs set the
floor for the price that company can charge.
(continued…)

 The following figure compares the major pricing strategies:


Customer Value-Based Pricing

 Effective, customer-oriented pricing involves understanding how much


value consumers place on the benefits they receive from the product
and setting a price that captures this value.
 Value-Based Pricing: Value-based pricing calls for setting price based
on buyers’ perceptions of value rather than on the seller’s cost.
Value-based pricing means that the marketer cannot design a
product and marketing program and then set the price. Price is
considered along with the other marketing mix variables before the
marketing program is set.
(continued…)

Types of Value-Based Pricing: We now examine two types of value-


based pricing: good-value pricing and value-added pricing.
 Good-Value Pricing: Offering just the right combination of quality and
good service at a fair price. An important type of good-value pricing
is everyday low pricing (EDLP). EDLP involves charging a constant,
everyday low price with few or no temporary price discounts. In
contrast, high-low pricing involves charging higher prices on an
everyday basis but running frequent promotions to lower prices
temporarily on selecting items.
 Value-Added Pricing: Attaching value-added features and services to
differentiate a company’s offer and charging higher prices. To
increase their pricing power many companies adopt value-added
pricing.
Cost-Based Pricing

 Cost-Based Pricing: Cost-based pricing involves setting prices based


on the costs for producing, distributing, and selling the product plus a
fair rate of return for effort and risk. A company’s costs may be an
important element in its pricing strategy.
 Cost-Plus Pricing: Cost-plus pricing involves adding a standard
markup to the cost of the product. It is two-step process:

fixed cos t
 Calculate the unit cost where unit cos t  var iable cos t 
unit sales

unit cos t
 Calculate the markup price where markup price 
(1  desired return on sales )
(continued…)
Competition Based Pricing

 Competition-based pricing involves setting prices based on


competitors’ strategies, prices, costs, and market offering. Consumers
will base their judgments of a product’s value on the prices that
competitors charge for similar products. Here answers to the following
two questions are to be critically evaluated:
 How does the company’s market offering compare with the
competitors’ market offerings in terms of customer value?
 How strong are current competitors and what are their current
pricing strategies?
Overall Marketing Strategy, Objectives, and Mix

 Price is only one element of the company’s broader marketing


strategy. Thus, before setting price, the company must decide on its
overall marketing strategy for the product or service. The aspects are
noteworthy:
 If the company has selected its target market and positioning
carefully, then its marketing mix strategy, including price, will be
fairly straightforward.
 Pricing may play an important role in helping to accomplish
company objectives at many levels.
 Price is only one of the marketing tools that a company uses to
achieve its marketing objectives. Price decisions must be
coordinated with product design, distribution, and promotion
decisions to form a consistent and effective integrated marketing
program.
New Product Pricing Strategies

 Companies bringing out a new product face the challenge of setting


prices for the first time. They can choose between the two broad
strategies:
 Market-Skimming Pricing
 Market-Penetration Pricing
(continued…)

 Market-Skimming Pricing: Setting a high price for a new product to


skim maximum revenues layer by layer from the segments willing to
pay the high price; the company makes fewer but more profitable
sales. The following conditions favor using market-skimming pricing:
 The product’s quality and image must support its higher price and
enough buyers must want the product at that price.
 The costs of producing smaller volume cannot be so high that
they cancel the advantage of charging more.
 Competitors should not be able to enter the market easily and
undercut the high price
(continued…)

 Market-Penetration Pricing: Setting a low price for a new product in


order to attract a large number of buyers and a large market share.
The following conditions favor using market penetration pricing:
 The market must be highly price sensitive so that a low price
produces more market growth.
 Production and distribution costs must fall as sales volume
increases.
 Low-price must keep out the competition, and the penetration
pricer must maintain its low-price position—otherwise, the price
advantage may only be temporary.
Thank You!

You might also like