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32 views18 pages

Chapter 10 PowerPoint

Uploaded by

Meera
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Principles of Marketing Eighteenth Edition

Chapter 10

Pricing: Understanding and Capturing


Customer Value
Learning Objectives

10-1 Answer the question “What is a price?” and discuss the importance of
pricing in today’s fast-changing environment.
10-2 Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and
competitor strategies when setting prices.
10-3 Identify and define the other important external and internal factors
affecting a firm’s pricing decisions.
What is Price?

is the amount of money charged for a product


Price or service, or the sum of all the values that
customers exchange for the benefits of
having or using the product or service.

It is what customers give up to gain the


benefits of having or using the product or
service

Price is the only element in the marketing


mix that produces revenue; all the other
elements represent costs
APPLE: Premium Priced and Worth it?
Apple has always set its prices way above those of
competitors, reaping the rewards of higher Avid fans have long anointed
Apple as the keeper of all
revenues and profits. But as Apple faces stiffer things cool, believing deep
global competition from lower-priced brands, some down that the value they
customers may be questioning just how much receive is worth the premium
more they are willing to pay for the iconic brand. price.

Customer Value-Based Pricing

Understanding how much value


consumers place on the benefits
they receive from the product,
then setting a price that
captures that value
Considerations in Setting Prices
Major Pricing Strategies

Three major pricing strategies:


• customer value-based pricing
• cost-based pricing
• competition-based pricing.
Customer Value-Based Pricing

Value-Based uses the buyers’ perceptions of value rather


Pricing than the seller’s cost.

• Price is set to match perceived value.


• Value-based pricing is customer driven.
• Cost-based pricing is product driven.
Value-Based Pricing VS Cost-Based Pricing

Target Costing
Customer Value-Based Pricing

Two types of value-based pricing are:

• good-value pricing
 Every day low pricing
 High-low pricing

• value-added pricing
Customer Value-Based Pricing

Good-Value is offering just the right combination of quality


Pricing and good service at a fair price.

Existing brands are being redesigned to offer more quality for the same
price or the same quality for less price (the less-expensive Armani
Exchange fashion line)

Everyday Low involves charging a constant everyday low price


Pricing (EDLP) with few or no temporary price discounts.

involves charging higher prices on an everyday


High-Low Pricing basis but running frequent promotions to lower
prices temporarily on selected items.
Customer Value-Based Pricing

Value-added attaches value-added features and services to


Pricing differentiate offers, support higher prices, and
build pricing power (avoid price competition &
justify higher prices without losing market share)
Cost-Based Pricing

Cost-Based sets prices based on the costs for producing,


Pricing distributing, and selling the product plus a fair
rate of return for effort and risk.

Fixed costs are the costs that do not vary with production or sales level.
•Rent, Interest, Executive salaries

Variable costs vary directly with the level of production.


• Raw materials, Packaging

Total costs are the sum of the fixed and variable costs for any given level of
production.
Competition-Based Pricing

Competition-Based is setting prices based on competitors’


Pricing strategies, costs, prices, and market offerings.

• Comparison of offering in terms of


customer value
• Strength of competitors
• Competition pricing strategies
• Customer price sensitivity
Other Considerations Affecting Price Decisions

Overall Marketing Strategy, Objectives, and Mix


Before setting price, the company must decide on its overall marketing
strategy for the product or service
Target costing starts with an ideal selling price based on consumer value
considerations and then targets costs that will ensure that the price is met.

Organizational Considerations
• Who should set prices?
• Who can influence prices?
Other Considerations Affecting Price Decisions

The Market and Demand


Before setting prices, the marketer must understand the relationship between
price and demand for its products.

Pricing In Different Types of Markets

Pure competition

Monopolistic competition

Oligopolistic competition

Pure monopoly
Other Considerations Affecting Price Decisions

The Market and Demand


Analyzing the Price–Demand Relationship
The demand curve shows the number of units
the market will buy in a given period at different
prices
• Demand and price are inversely related.
• Higher price = lower demand

For prestige (luxury) goods, higher price can


equal higher demand when consumers
perceive that higher prices indicate higher
quality (Gibson Guitar’s upward sloping
demand curve)
Other Considerations Affecting Price Decisions

The Market and Demand

Price Elasticity of Demand


Price elasticity is a measure
of the sensitivity of demand to
changes in price.

Inelastic demand is when demand hardly changes with a small change in


price.
Elastic demand is when demand changes greatly with a small change in
price.
Other Considerations Affecting Price Decisions

The Economy and Other External Factors

Economic conditions

Reseller’s response to price

Government

Social concerns

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