Pricing Strategies and Determination

Study Notes

Price is the monetary amount charged for a product or service, reflecting the value exchanged for benefits received.
It serves as a critical factor in revenue generation and market positioning for businesses.

Achieve profitability while considering market demand and competition.
Influence consumer purchasing decisions by aligning perceived value with pricing.

Prices can be determined based on customer perceptions of value (value-based pricing) or costs incurred in production (cost-based pricing).

Focuses on setting prices based on buyers’ perceived value rather than seller costs.
Good Value Pricing: Offers quality and service at a fair price.
Value Added Pricing: Adds features/services to differentiate products, allowing for higher pricing (e.g., Philips LED lights).

Prices are set by adding a profit margin to the total costs of production and distribution.
Different costs associated include:
- Fixed Costs: Expenses that remain constant regardless of production volume.
- Variable Costs: Expenses that fluctuate with production levels.
- Total Costs: Sum of fixed and variable costs.

Cost-plus Pricing: Involves adding a standard markup to the cost price.
Break-even Pricing: Prices set to cover costs, targeting specific return on investment.
Competition-based Pricing: Prices derived from analyzing competitors’ strategies and market offerings.
Target Costing: Begins with an ideal selling price and works backward to determine production costs to achieve that price.

Pure Competition: Many firms, homogenous products, no control over prices.
Monopolistic Competition: Many firms with differentiated products, moderate price control.
Oligopolistic Market: Few large firms, products can be similar or differentiated, significant price control due to interdependence.
Pure Monopoly: One firm dominates, unique products with significant control over prices, high entry barriers due to regulations or patents.