Marketing Strategies - Pricing PDF

1. Pricing approaches 2. New product pricing strategies Approaches to Pricing Cost-Based Break-Even Pricing Pricing Value-Based Competition- Pricing...

1. Pricing approaches 2. New product pricing strategies Approaches to Pricing Cost-Based Break-Even Pricing Pricing Value-Based Competition- Pricing Based Pricing (Kotler, et. al, 2021, pp.331-334) Cost Based Pricing Product Simple cost-plus pricing. Adding a standard markup (or %) to the cost of the product. Cost Price Hospitality companies that often use this approach: Value F&B: food cost 28-32% Customers Break-even Analysis or Target Profit Pricing Product Tries to determine the price at which a firm will break even or make targeted profit. Cost Breakeven point is the point of business operations at Price which costs (or expenses) and revenue are equal: there is no net loss or gain. Value Customers Breakeven Point Question 1. In how many days the company will reach the breakeven if they sell 50 units a day? In how many days it will reach the profit of $10000? 2. How many days the company will need to breakeven if they sell 50 units a day and charge $6 per unit? Value-Based Pricing Uses buyer’s perception of value as a key to Customer pricing. Nonprice variables help to build perceived Value value in customers’ minds. Price Trade-off analysis – ask customers how much they Cost are willing to pay. This way the company evaluates Product the price sensitivity of their target market. Competition-Based Pricing Competitor’s Price Pricing approach based on competition. Less attention paid to costs or demand. Price This approach is often used by companies in Customers highly competitive markets. New Product Pricing Strategies Prestige Pricing Market- Market- Penetration Skimming Pricing Pricing (Kotler, et. al, 2021, pp.334-335) New Product Pricing Strategies 1. Prestige Pricing A company seeking to position themselves as luxurious and elegant enter the market with a high price to support this position. New Product Pricing Strategies 2. Market-Skimming Pricing Setting a high price when the market is price-insensitive. Makes sense when lowering the price will create less revenue. ▪ Price skimming can be an effective short-term policy ▪ However, one danger is that competition will notice the high prices that consumers are willing to pay and enter the market, creating more supply and eventually reducing prices. New Product Pricing Strategies 3. Market-Penetration Pricing Companies set a low initial price to penetrate the market quickly and deeply, attracting many buyers and winning a large market share. Several conditions favor setting a low price: 1) The market must be highly price-sensitive so that a low price produces more market growth 2) There should be economics that reduce costs as sales volume increases 3) The low price must help keep out competition References Kotler, P., Bowen, J.T., Makens, J.C., & Baloglu, S. (2021). Marketing for hospitality and tourism (8th ed.). Harlow, UK: Pearson.