Session Outline: In-Class Oral Quiz - Price Why Your Bananas Could Soon Cost More in The Afternoon

Session Outline
• In-class oral quiz

• Chapter 10 & 11 – Price
• Class Activity – Why your bananas could
soon cost more in the afternoon
Identify which product level is signified
by the following examples
1. Insurance provided post-purchase for an
Honda City
2. Transportation from one place to another
3. Decent mileage, inflated tires
4. Elegant, yet comfortable store layout of
Starbucks
5. 10-year mattress warranty for Moltyfoam
6. Communication and prestige associated
with iPhone
Amul’s Product Mix
Classify the following Product Line
Decisions
1. Honda with Acura, Toyota with Lexus, Nissan
with Infiniti
2. Armani has the Emporio Armani and A/X
Armani Exchange lines
3. Sunsilk introducing over half a dozen usage
variants of shampoos
4. Titan Watches entered the luxury segment of
the Indian wristwatch market with brands such
as Edge, Xylus, Nebula, etc. In addition, Titan
also introduced an inexpensive sub-brand,
Sonata.
Chapter Ten
Pricing: Understanding and Capturing

Customer Value
Pricing Concepts Understanding and
Capturing Customer Value
Topic Outline
• What Is a Price?
• Customer Perceptions of Value
• Company and Product Costs
• Other Internal and External Considerations
Affecting Price Decisions
• New-Product Pricing Strategies
• Product Mix Pricing Strategies
• Price Adjustment Strategies
• Price Changes
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 consumers give up in order to gain
the benefits of having or using a product or
service.
• Price is the only element in the marketing mix
that produces revenue; all other elements
represent costs
Factors to Consider When
Setting Prices
Customer Perceptions of Value
Value-based pricing
Good-value pricing
Value-added pricing
Cost-based pricing
Factors to Consider When Setting
Prices
• Understanding how much value consumers place on
the benefits they receive from the product and setting a
price that captures that value
1. Value-based pricing is customer driven
2. Cost-based pricing is product driven
Value-based pricing uses the buyers’ perceptions of
value, not the sellers cost, as the key to pricing. Price is
considered before the marketing program is set.
VERSUS
Cost-based pricing relies on setting price based on
various costs such as production, distribution etc and
then adding a fair rate of return for effort and risk.
Setting Prices
• Good-value pricing offers the right combination
of quality and good service to fair price
• Existing brands are being redesigned to offer more
quality for a given price or the same quality for less
price
Setting Prices
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
Prices
• Value-added pricing attaches value-added
features and services to differentiate offers,
support higher prices, and build pricing power
• Pricing power is the ability to escape price
competition and to justify higher prices and
margins without losing market share
• It is specially effective as a tool for commodity
products which are characterized by intense
price competition
Prices
Company and Product Costs
• Cost-based pricing involves setting prices
based on the costs for producing, distributing,
and selling the product plus a fair rate of return
for its effort and risk
• Cost-based pricing adds a standard markup
to the cost of the product
Setting Prices
Company and Product Costs
Types of costs
Fixed Variable Total

costs costs costs
Setting Prices
Cost-Plus Pricing
• Cost-plus pricing adds a standard markup to the
cost of the product
• Benefits
• Sellers are certain about costs
• Prices are similar in industry and price competition is
minimized
• Consumers feel it is fair
• Disadvantages
• Ignores demand and competitor prices
Prices
Break-Even Analysis and Target Profit Pricing
• Break-even pricing is the price at which total
costs are equal to total revenue and there is no
profit
• Target profit pricing is the price at which the
firm will break even or make the profit it’s
seeking
Setting Prices
Other Internal and External Considerations
The demand curve shows the number of units the
market will buy in a given period at different
prices
• Normally, demand and price are inversely
related
• Higher price = lower demand
• For prestige (luxury) goods, higher price can
equal higher demand when consumers
perceive higher prices as higher quality
Prices
Other Internal and External
Consideration
Economic conditions
Reseller’s response to price
Government
Social concerns
Chapter 11
Pricing Strategies
New-Product Pricing Strategies
Pricing Strategies
Market-skimming pricing is a strategy with high
initial prices to “skim” revenue layers from the
market
• Product quality and image must support the
price
• Buyers must want the product at the price
• Costs of producing the product in small volume
should not cancel the advantage of higher prices
• Competitors should not be able to enter the
market easily
New-Product Pricing Strategies
Pricing Strategies
Market-penetration pricing sets a low initial price
in order to penetrate the market quickly and
deeply to attract a large number of buyers
quickly to gain market share
• Price sensitive market
• Inverse relationship of production and
distribution cost to sales growth
• Low prices must keep competition out of the
market
Pricing Strategies
Optional- Captive-
Product
product product
line pricing
pricing pricing
Product
By-product
bundle
pricing
pricing
Product Mix Pricing Strategies
Pricing Strategies
Product line pricing takes into account the cost
differences between products in the line,
customer evaluation of their features, and
competitors’ prices
Optional product pricing takes into account
optional or accessory products along with the
main product
Product Mix Pricing Strategies
Pricing Strategies
Captive-product pricing involves products that
must be used along with the main product
• Two-part pricing involves breaking the price
into:
• Fixed fee
• Variable usage fee
Price Mix Pricing Strategies
Pricing Strategies
• By-product pricing refers to products with
little or no value produced as a result of the
main product. Producers will seek little or no
profit other than the cost to cover storage and
delivery.
• Product bundle pricing combines several
products at a reduced price
Price Mix Pricing Strategies
Pricing Strategies
Price-Adjustment Strategies
Discount and
Segmented
allowance
pricing
pricing
Psychological Promotional
pricing pricing
Geographic Dynamic International

pricing pricing pricing
Pricing Strategies
Discount and allowance pricing reduces prices
to reward customer responses such as paying
early or promoting the product
• Discounts
• Allowances
Pricing Strategies
Segmented pricing is used when a company sells
a product at two or more prices even though
the difference is not based on cost
• Customer-segment pricing
• Product-form pricing
• Location-pricing
• Time-pricing
Pricing Strategies
Psychological pricing occurs when sellers consider the
psychology of prices and not simply the economics
• Reference prices are prices that buyers carry in their
minds and refer to when looking at a given product
• Noting current prices
• Remembering past prices
• Assessing the buying situations
Pricing Strategies
Promotional pricing is when prices are
temporarily priced below list price or cost to
increase demand
• Loss leaders
• Special event pricing
• Cash rebates
• Low-interest financing
• Longer warrantees
• Free maintenance
Pricing Strategies
Geographical pricing is used for customers in

different parts of the country or the world
• FOB pricing
• Uniformed-delivery pricing
• Zone pricing
• Basing-point pricing
• Freight-absorption pricing
Pricing Strategies
Dynamic pricing is when prices are adjusted

continually to meet the characteristics and
needs of the individual customer and
situations
Pricing Strategies
International pricing is when prices are set in a
specific country based on country-specific
factors
• Economic conditions
• Competitive conditions
• Laws and regulations
• Infrastructure
• Company marketing objective
Price Changes
Initiating Pricing Changes
Price cuts occur due to:

• Excess capacity
• Falling demand
Price increase from:

• Cost inflation
• Increased demand
• Lack of supply
Price Changes
Buyer Reactions to Pricing Changes
Price
Price cuts
increases
• Product is “hot” • New models
• Company greed will be available
• Models are not
selling well
• Quality issues
Public Policy and Pricing
Pricing Across Channel Levels
Deceptive pricing occurs when a seller states
prices or price savings that mislead consumers
or are not actually available to consumers
• Price confusion results when firms employ
pricing methods that make it difficult for
consumers to understand what price they are
really paying

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Session Outline

• In-class oral quiz

Pricing: Understanding and Capturing

High-low pricing involves charging higher prices

Fixed Variable Total

Reseller’s response to price

Geographic Dynamic International

Geographical pricing is used for customers in

Dynamic pricing is when prices are adjusted

Price cuts occur due to:

Price increase from:

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