Chp 8 Pricing.pptx

Price: Meaning & Importance; Objectives, Price Determination, Factors influencing Price Determination & Pricing Strategies 1. Price The amount of money charged for a product or service, or the sum of the values that customers exchange for the...

Price: Meaning & Importance; Objectives, Price Determination, Factors influencing Price Determination & Pricing Strategies 1. Price 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 2. Cost Based Pricing Vs Value Based Pricing 2.i. Value Based Pricing Customer Value Based pricing Setting price based on buyers’ perceptions of value rather than on the seller’s cost. i. Good Value Pricing Offering just the right combination of quality and good service at a fair price. ii. Value Added Pricing Attaching value-added features and services to differentiate a company’s offers and charging higher prices. E.g Philips LED lights 2.ii. Cost Based Pricing Cost Based pricing Setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk. Kinds of Costs i. Fixed costs (overhead): Costs that do not vary with production or sales level. ii. Variable costs: Costs that vary directly with the level of production. iii. Total costs: The sum of the fixed and variable costs for any given level of production. 2.ii.a. Types of Cost Based Cost-plus pricing (markup pricing): Adding a standard Pricing markup to the cost of the product.  2.ii.a. Types of Cost Based Pricing Break-even pricing (target return Competition-based Target costing Pricing pricing): Setting price pricing: Setting prices that starts with an ideal to break even on the based on competitors’ selling price, then costs of making and strategies, prices, targets costs that will marketing a product or costs, and market ensure that the price is setting price to make a offerings. met. target return. 3. Pricing in Different Types of markets i. Pure competition ii. Monopolistic competition iii. Pure Competitive Market iv. Pure Monopoly Market  Pure Oligopolistic Monopolistic Pure Monopoly Aspect Competitive Market Market Market Market Few large firms Many small to Number of Firms with significant medium-sized Many small firms One firm market share firms May exist, but Product products can be Significant product Homogeneous Unique product Differentiation similar or differentiation products differentiated Some control over Some control over prices due to Price takers - no Significant control Control Over Price prices due to product control over prices over price interdependence differentiation Extremely high High barriers due Moderate barriers Low barriers due to barriers such as Entry Barriers to economies of due to product easy entry and exit patents, scale, patents, etc. differentiation regulations, etc. Considerable May engage in Significant advertising to Minimal some advertising Advertising advertising differentiate advertising for brand expenditure products reinforcement Agricultural 4. Pricing Strategies i. New Product Pricing Strategies a. Market-skimming pricing (price skimming) 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 b. 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. 4. Pricing Strategies ii. Product Mix Pricing Strategies 4. Pricing Strategies iii. Price Adjustment Strategies