• Positive
• Price to cover cost of production then add to make a profit
• Yield a fair return over all costs 
• Pricing affects sales volume and vice versa 
• All costs are met 
• Negative
• Hidden costs can be forgotten/over looked 

Value-Based Pricing 

• Positive 
• Price you believe customers are willing to pay 
• Creating value by offering clear benefits to consumers 
• Negative
• Can scare away price sensitive customers 
• Can draw in new competitors 

• Find the combination of profit margin and market share to maximize profit over the long term 

• Costs that determine the profit impact 
• incremental (not average). The cost of building a new product 
• Avoidable (not sunk). Costs that can be avoided by not adding/producing more products. 

• size of expenditures 
• shared costs
• switching costs
• perceived risk
• importance of end benefit
• price-quality perceptions 
• reference prices
• perceived fairness

• Understanding how value is created 

• The offering (use) ex: work out equipment 
• economic (helps me save money)
• psychological value (I percieve it to be valuable)

• Managerial judgement 
• look at past models 
• benchmarking (watching competitors)
• research (duh!)
• focus groups 
• experimentation (use test markets)
• analysis of historical data 

• Segmenting pricing
• A method to capture the value created from the prices charged  

• Units to which a price is applied 
• "price per x" 

• (price segmentation) 
• purchase location
• product design 
• product bundling 
• quantity purchased 
• tie ins and metering 
• time of purchase 

• Assurance- gurantee or affirmation. The price paid will provide something to the consumer 
• Associations- Creating value through other brands and organizations 

• size of expenditure (costco,B2B)
• switching costs (cell phones, windows to mac)
• shared costs (whitworth, medical insurance, gov.)
• percieved risk (ADT, health products, cloud computing, car safety) 
• importance of end-benefits (fitness, ITT tech)
• price-quality perceptions (apple, utilities)

• Price branding Analysis-

1.  regression analysis- plot prices 
2. determine the fair price area 
3. determin customers at risk 
4. determine "outlaws" (people who are paying too little)

• Customer profitablity analysis- who are your profitable customers?
• Price waterfall analysis- total cost after all the discounts 

• Promotional pricing-limited time to generate interest/excitement 
• Negotiated pricing 
• volume/quantity discounts 
• bid-loyalty pricing 

• Find and understand perceived value w/ initial identification of target segments 
• Consider objectives of the business
• Develop price range 

1. Skim pricing- set the price high to get the top of the market then keeping moving it down 
2. Penetration pricing- lowering the price to gain market share
3. Neutral pricing- price isn't as important as the rest of the marketing mix 

1. Micheal Porter 
2. Day and Wensley 
3. Treacy and Wiersma 

1. Cost Leadership- Wal-Mart 
2. Differentiation- Smart Car, Apple 
3. Focus- Niche market product, "REI"

1. Superior Skills- skills that lead to competitive advantage such as: innovation, marketing skills ect.
2. Superior Resources- resources that lead to competitive advantage such as: Money, financial, relational, physical, legal, informational, HR

1. Operational excellence- doing things better "FedEx"
2. Product Leadership- your products are the best "Apple", "Coke"  
3. Customer Intamacy- involved with the customers "REI" 

Sustainable Competitive Advantage

- Offers some competitive edge over current and future rivals 

• Higher prices when you have competitive advantage 
• Without competitve advantage all you can compete on is price:

1. opens up to price wars 
2. lowest cost structure wins 

1. Ignore
2. Match- ex: "gas","airlines", competitor may have higher cost advantage and be more profitable 
3. Beat- better have the lowest cost structure ex: wal-mart 

1. Manufacturer 
2. Wholesale 
3. Retail
4. Directly to consumer 

• Getting the product to the distributors 
• "Pushing" your product down the distribution channels

• Creating demand for the product by marketing straight to the consumer 

The breakeven analysis is the point where exspenses meet revenues thus the "breakeven" analysis 

Formula = 

• Studying relationships among prices, cost & volume
• Analyzing pricing alternatives
• Developing cost control programs (see if we can reduce fixed costs)
• Analyzing decisions that effect production levels

The grid is 2x2 and

                                Weaker                                         Neutral or stronger

Too costly                 ignore         accommodate (put up with, match or not)

Cost justification     attack           Defend (match or beat, ads, new models)

• Introduction- few competitors, no threat of sub. can charge premium
• Growth- number of competitors increase rapidly 
• Maturity- power of buyer increases, power of supplier decreases (suppliers can't afford to loose their business) 
• Decline- capacity exceeds supply