Unit 7: Pricing Strategies PDF

UNIT 7: PRICING STRATEGIES 1. Price: Concept, importance and objectives Price: Amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service. 4Cs when deciding on a pricing strategy: 1. C...

UNIT 7: PRICING STRATEGIES 1. Price: Concept, importance and objectives Price: Amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service. 4Cs when deciding on a pricing strategy: 1. Customers 2. Current positioning 3. Competitors 4. Costs 2. Pricing criteria: costs, demand and competition Value-based pricing uses the buyers´ perception of value rather than the seller´s cost. - Value-based pricing is customer driven - Cost-based pricing is product driven - Price is set to match perceived value rather than costs Customer Value-based pricing Good-value pricing is offering just the right combination of quality and good service at a fair price. Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts. High-low pricing involves 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 a company´s offers and thus higher prices. Cost-based pricing Cost-plus pricing adds a standard markup to the cost of the product. Benefits: - Sellers are certain about costs - Price competition is minimized - Buyers feel it is fair Disadvantages: - Ignores demand and competitor prices Competition-based pricing is setting prices based on competitors´ strategies, costs, prices and market offerings. Market-skimming pricing Setting a high price for a new product in order to maximize profit (less sales but more profitable). Quality and image of the product must support the price costs (for less units) cannot grow enough so as to cancel the extra-profit market should be “secured”. Market-penetration pricing Setting a low price for a new product in order to maximize profit (low profitability per sale in many sales). Adequate for price sensitive markets (high elasticity). Unitary costs (for more units) should decrease. In insecure markets, should keep competitors out. Product line pricing Setting the price steps between various products in the line based on cost differences, customer evaluation differences or competitors´ prices. Optional-product pricing The pricing of accessory products, along with a main product. For example, a phone and its case. Captive-product pricing The pricing of a product that MUST be used along with a main product. For example, low price for printer and high price for ink. By-product pricing Pricing by-products so as for the main product to price more competitively. Product-bundle pricing Pricing a combination of products to be sold together. For example a kit of shampoos (some shampoos sold together in the same kit). Discount pricing Straight reduction in price on purchase, based on customers´ behaviour. Allowance: Money paid by producers to retailers in exchange for preferential treat. Psychological pricing Setting such a price that it may suggest something about the product. Promotional pricing Temporarily pricing below the list price, to increase short-run sales. Segmented pricing Selling a product or service at two or more different prices, where the difference is not based on differences on costs. - Customer segment pricing - Product-form pricing - Location pricing - Time pricing