Podcast
Questions and Answers
What is price in the narrow sense?
What is price in the narrow sense?
The amount of money charged for a product or service.
What is price more broadly considered?
What is price more broadly considered?
The sum of all the values that consumers give up to gain the benefits of a product or service.
What element in the marketing mix produces revenue?
What element in the marketing mix produces revenue?
What is good-value pricing based on?
What is good-value pricing based on?
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What does value-based pricing focus on?
What does value-based pricing focus on?
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What does cost-based pricing involve?
What does cost-based pricing involve?
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Cost-based pricing adds a standard markup to the cost of the product.
Cost-based pricing adds a standard markup to the cost of the product.
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Break-even pricing is the price at which total costs are equal to total revenue and there is no __________.
Break-even pricing is the price at which total costs are equal to total revenue and there is no __________.
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Match the pricing strategy with its description:
Match the pricing strategy with its description:
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Study Notes
Pricing: Understanding and Capturing Customer Value
- Price is the amount of money charged for a product or service, and more broadly, it is the sum of all the values that consumers give up to gain the benefits of having or using a product or service.
Factors to Consider When Setting Prices
- Customer Perceptions of Value: understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value.
Value-Based Pricing Strategies
- Uses buyers' perceptions of value, not sellers' cost, as the key to pricing.
- Price is considered before the marketing program is set.
- Customer-driven, not product-driven.
Good-Value Pricing
- Offers the right combination of quality and good service at a fair price.
- May involve introducing lesser expensive versions of established brands (e.g. Armani Exchange, Emirate's Fly Dubai).
- Existing brands are being redesigned to offer more quality for a given price or the same quality for less price.
Every Day Low Pricing (EDLP)
- Charging a constant everyday low price with few or no temporary price discounts (e.g. Walmart).
High-Low Pricing
- Charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.
Value-Added Pricing
- Attaches value-added features and services to differentiate offers, support higher prices, and build pricing power.
- Examples: Stag umbrella with built-in high-power flashlight, models with pre-recorded tunes for music lovers, and Bodyguard model with glare lights, emergency blinkers, and an alarm.
Company and Product Costs
- Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk.
Types of Costs
- Fixed costs: costs that do not vary with production or sales level (e.g. rent, heat, interest, executive salaries).
- Variable costs: costs that vary with the level of production (e.g. packaging, raw materials).
- Total costs: the sum of the fixed and variable costs for any given level of production.
- Average cost: the cost associated with a given level of output.
Cost-Based Pricing Strategies
- Cost-plus pricing: adds a standard markup to the cost of the product.
- Benefits: sellers are certain about costs, prices are similar in industry and price competition is minimized, and consumers feel it is fair.
- Disadvantages: ignores demand and competitor prices.
Break-Even Analysis and Target Profit Pricing
- Break-even pricing: the price at which total costs are equal to total revenue and there is no profit.
- Target profit pricing: the price at which the firm will break even or make the profit it's seeking.
Competition-Based Pricing
- Involves setting prices based on competitors' strategies, costs, prices, and market offerings.
- Consumers will base their judgments of a product's value on the prices that competitors charge for similar products.
Other Internal and External Considerations
- Customer perceptions of value set the upper limit for prices, and costs set the lower limit.
- Companies must consider internal and external factors when setting prices.
- Overall marketing strategy, objectives, and mix: price is only one element of the company's broader marketing strategy.
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Description
This quiz covers the importance of pricing in a changing environment, major pricing strategies, and understanding customer-value perceptions. It also discusses company costs, competitor strategies, and other important pricing factors.
