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The amount of money charged for a product or service, the sum of the values that customers exchange for the benefits of having or using the product or service.
Pricing: No matter what the state of the economy, companies should sell value, not price. |
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| Setting the right price is one of the marketer's most difficult tasks. A host of factors come into play. But finding and implementing the right price strategy is critical to success. |
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| Customer perceptions of the product's value set the celing for prices. If customers perceive that the product's price is greater than its value they will not buy the product. |
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| determined by product cost. |
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| 3 Major pricing strategies |
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Customer value-based pricing
cost based pricing
competition based pricing |
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| Customer value Based Pricing |
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(Like everything else in marketing good pricing starts with customers and their perceptions of value)
setting price based on buyers perceptions of value rather than on the seller's cost
Means the marketer cannot design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set. |
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| The right pricing strategy |
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| Delivers both value to the custumer and profits to the company |
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| Offering the right combination of quality and good service at a fair price. (treseme ad, salon look and feel at a fraction of the price) |
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Attaching value-added features and services to differentiate a company's offers and charing higher prices.
IE. Umbrella manufacturer: instead of making cheaper umbrellas, offer new colors, and features for the same price. |
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| EDLP: Everyday Low Pricing |
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Part of good-value pricing, involves charing a constant everyday low price with few or no temporary price discounts.
Ie. Costco, Walmart |
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| Part of good value pricing: strategy where charing higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. (department stores) |
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| Setting prices based on the costs for producing distributing and selling the product plus a fiar rate of return for effort and risk |
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Costs that do not vary with production or sales level
ie. building rent. |
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| Costs that vary directly with the level of production |
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| The sum of the fixed and variable costs for any given level of production |
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| Experience learning curve |
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The drop in the average per-unit production cost that comes with accumulated production experience
If a downward sloping experience curve exists, this is highly significant for the company. The company's unit production cost fall, but it will fall faster if the company makes and sells more during a given time period. But the market has to stand ready to buy the higher output. Must have large market share early on. |
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| Cost-plus pricing (markup pricing) |
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| Adding a standard markup to the cost of the product |
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Term
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| = Variable cost + ((fixed cost)/(unit sales)) |
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Markup price: Equation
ie. 20% markup |
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= Unite cost/ (1-desired return on sales)
ie. 20% markup
=unit cost/(1-.2) |
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Make sense? Using standard markup to set prices?
And
Why is it popular |
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Usually no, any pricing method that ignores demand and competitor prices is not likely to lead to the best price.
Why it's still popular:
sellers are more certain about cost than demand
when all competitors use this model, results for costs and pricing is similar therefore price wars are avoided.
People believe it is fair |
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| Break-even pricing (target return pricing) |
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| Setting price to break even on the costs of making and marketing a product or setting price to make a target return. |
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| Break even volume: Equation |
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| = fixed cost/ (price- variable cost) |
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| Competition Based Pricing |
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Setting prices based on competitors strategies, prices, costs and market offerings
Doesn't necessarily mean price
Beat competition other ways:
better atmosphere
better customer service
think booksmith vs. borders |
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| Pricing that starts with an ideal selling price and then targets costs that will ensure that the price is met. |
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| Price Adjustment Strategies (7) |
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Definition
1. Discount and allowance pricing
2. Segmented pricing
3. psychologial pricing
4. promotional pricing
5. geographical pricing
6. dynamic pricing
7. international pricing
Companies adjust their basic prices to account for various customer differences and changing situations |
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| A straight reduction in price on purchases during a stated period of time or of larger quantities |
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| Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer's products in some way |
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Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.
Museums and movie theaters may charge lower prices for seniors or students |
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different versions of the product are priced pdifferntly but not according to difference in their costs.
water costs a certain price at the supermarket, but at a concert its a tottaly different price. |
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| company charges different prices for different locations even though the cost of offering each location is the same. For instance statue universities charge higher tuition for out of state students and theatersvary their seat prices beacuse of audience preferences for certain locations. |
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| company charges different prices for different locations even though the cost of offering each location is the same. For instance statue universities charge higher tuition for out of state students and theatersvary their seat prices beacuse of audience preferences for certain locations. |
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| Frim varies its price by the season, the month, the day and even the hours. Movie theaters charge matinee pricing during the daytime. |
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Pricing that considers the psychology of prices not simply the ecnomics the price says something about the product.
perfume |
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Prices that buyers carry in their minds and refer to when they look at a given product
ie. Ralph Lauren selling its Ricky bag for 14,000 during the recession, making its Tiffin bag a steal at just 2,595 |
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Temporarily pricing products below the list price and sometimes even below costs, to increase short run sales.
creates excitement and urgency
Black Friday |
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