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# Chapter 14: Pricing Strategies ## What is a Price? * Price is the amount of money charged for a product or service. * It is the sum of all the values that customers give up in order to gain the benefits of having or using a product or service. ## Customer Value-Based Pricing Uses buyers' p...

# Chapter 14: Pricing Strategies ## What is a Price? * Price is the amount of money charged for a product or service. * It is the sum of all the values that customers give up in order to gain the benefits of having or using a product or service. ## Customer Value-Based Pricing Uses buyers' perceptions of value as the key to pricing. ### Value-Based Pricing * Customer driven * Price is set to match perceived value ### Cost-Based Pricing * Product driven * Cost plus a desired profit margin ### Types of Value-Based Pricing * **Good-value pricing:** Offering just the right combination of quality and good service at a fair price. * Introducing less expensive versions of established brand name products. * Redesigning existing brands to offer more quality for a given price or the same quality for less. * **Everyday low pricing (EDLP):** Charging a constant everyday low price with few or no temporary price discounts. * **High-low pricing:** Charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. * **Value-added pricing:** Attaching value-added features and services to differentiate a company's offers and charging higher prices. ## Cost-Based Pricing Based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk. ### Types of Costs * **Fixed costs (overhead):** Costs that do not vary with production or sales level. * **Variable costs:** Costs that vary directly with the level of production. * **Total costs:** The sum of the fixed and variable costs for any given level of production. ## Cost-Plus Pricing Adding a standard markup to the cost of the product. ## Break-Even Pricing Setting price to break even on the costs of making and marketing a product, or setting price to make a target return. ### Break-Even Chart The image shows a break-even chart with the following components: * **Fixed Costs:** A horizontal line representing fixed costs, which remain constant regardless of production volume. * **Total Revenue:** An upward-sloping line indicating total revenue, increasing with each unit sold. * **Total Costs:** An upward-sloping line representing total costs (fixed + variable), also increasing with production volume, but starting from the fixed cost level. * **Break-Even Point:** The intersection of the total revenue and total cost lines, indicating the sales volume at which total revenue equals total costs (no profit or loss). * **Profit Area:** The area where total revenue exceeds total costs, indicating profitability. * **Loss Area:** The area where total costs exceed total revenue, indicating a loss. The chart visually demonstrates how changes in production volume affect costs, revenue, and profitability, and helps determine the break-even point. ## Competition-Based Pricing Setting prices based on competitors' strategies, costs, prices, and market offerings. ## Other Considerations Affecting Price Decisions ### Internal Factors * Overall marketing strategy, objectives, and mix * Organizational considerations ### External Factors * The market and demand * The economy * Impact on other parties in its environment