Pricing Understanding and Capturing Customer Value 9 Pricing Understanding and Capturing Customer Value

What is Price Price is the amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service.

Customer Value-Based Pricing Buye r’s Perc epti ons of Valu e Good-value pricing Value-added pricing Notes to Accompany Slide: Customer value-based pricing uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing. 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. Good-value pricing strategies involves offering just the right combination of quality and good service at a fair price. Value-added pricing involves attaching value-added features and services to differentiate a company’s offers and charging higher prices.

Setti ng Price Base d on Cost s Cost-Based Pricing Cost - Bas ed Prici ng Setti ng Price Base d on Cost s Cost-Plus Pricing Breakeven Pricing Notes to Accompany Slide: 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. Cost-plus pricing (markup pricing): Adding a standard markup to the cost of the product. Break-even pricing (target return pricing): Setting price to break even on the costs of making and marketing a product, or setting price to make a target return.

Types of Costs Notes to Accompany Slide: Fixed Costs Variable Costs Total Costs Notes to Accompany Slide: Fixed costs (also known as overhead) are costs that do not vary with production or sales level. Variable costs vary directly with the level of production.

Internal and External Considerations Affecting Price Decision Overall Marketing Strategy, Objectives, and Mix Organizational Considerations The Economy The Government Social Concerns The Market and Demand

Pricing in Different Types of Markets Pure competition Monopolistic competition Oligopolistic competition Monopoly Notes to Accompany Slide: The seller’s pricing freedom varies with different types of markets. Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper, or financial securities. No single buyer or seller has much effect on the going market price. In a purely competitive market, marketing research, product development, pricing, advertising, and sales promotion play little or no role. Thus, sellers in these markets do not spend much time on marketing strategy. Under monopolistic competition, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Sellers try to develop differentiated offers for different customer segments and, in addition to price, freely use branding, advertising, and personal selling to set their offers apart. Under oligopolistic competition, the market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies. Because there are few sellers, each seller is alert and responsive to competitors’ pricing strategies and moves.

New-Product Pricing Notes to Accompany Slide: Market-skimming pricing Market-penetration pricing Notes to Accompany Slide: 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. 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.

PRODUCT MIX PRICING

PRICE ADJUSTMENTS

Pricing within Channel Levels Prohibited Price fixing – talking with competitors to set prices Predatory pricing – selling below cost with the intention of punishing a competitor or putting them out of business

Pricing across Channel Levels Prohibited Price discrimination – ensure same price to customers at given level of trade Price maintenance – requiring dealers to charge a specified retail price Deceptive pricing – seller states price that may mislead customers