PPT7 - Pricing Understanding and Capturing Customer Value

MKTG 6113 Marketing Management
Week 7
Pricing: Understanding and Capturing
Customer Value
 SUB TOPICS:
CHAPTER 10
- WHAT IS A PRICE?
- MAJOR PRICING STRATEGIES
- OTHER INTERNAL AND EXTERNAL CONSIDERATIONS
- AFFECTING PRICE DECISIONS
-
Chapter Objectives
 Objective 1: Answer the question “What is a price?” and discuss the

importance of pricing in today’s fast-changing environment.
 Objective 2: Identify the three major pricing strategies and discuss the
importance of understanding customer-value perceptions, company
costs, and competitor strategies when setting prices.
 Objective 3: Identify and define the other important external and
internal factors affecting a firm’s pricing decisions
1-3
What Is a Price?
is the amount of money charged for a product
or service, or the sum of all the values that
customers exchange for the benefits of
having or using the product or service.
10-6
Major Pricing Strategies
FIGURE | 10.1 Considerations in Setting Price
10-9
Customer Value-Based Pricing
Value-based pricing
uses the buyers’ perceptions of value
rather than the seller’s cost.
– Value-based pricing is customer driven.
– Cost-based pricing is product driven.
– Price is set to match perceived value.
10-10
Figure 10.2: Value-Based Pricing vs. Cost-Based Pricing
10-11
Good-value High-low
pricing Everyday low Value-added
pricing involves
pricing (EDLP) pricing attaches
• offering just the charging higher
right combination involves value-added
prices on an
of quality and charging a features and
good service at a everyday basis
constant services to
fair price. but running
everyday low differentiate
frequent
price with few the companies
promotions to
or no offers and thus
lower prices
temporary price their higher
temporarily on
discounts. prices
selected items.
Cost-Based Pricing
Cost-based pricing
sets prices based on the costs for producing,
distributing, and selling the product plus a fair rate of
return for effort and risk.
Fixed costs are Variable costs

the costs that vary directly Total costs are
do not vary with the level the sum of the
with of production. fixed and
production or • Raw materials, variable costs
sales level. Packaging for any given
• Rent, Heat, level of
Interest, Executive production.
salaries
10-16
Cost-Based Pricing
Costs at Different Levels of Production
FIGURE | 10.3 Cost per Unit at Different Levels of Production per Period
10-20
Cost-Based Pricing
Costs as a Function of Production Experience
FIGURE | 10.4 Cost per Unit as a Function of Accumulated Production:

The Experience Curve
10-21
Cost-Based Pricing
Cost-plus pricing
adds a standard markup to the cost of the product.
– Benefits
• Sellers are certain about costs.
• Price competition is minimized.
• Buyers feel it is fair.
– Disadvantages
• Ignores demand and competitor prices
10-22
Cost-Based Pricing
Break-even pricing (target return pricing)

is setting price to break even on costs or to make a target
return.
10-23
Cost-Based Pricing
Break-even pricing (target return pricing)

is setting price to break even on costs or to make a target
return.
10-23
Competition-based pricing
Competition-based pricing
is setting prices based on competitors’
strategies, costs, prices, and market
offerings.
10-24
Other Internal and External
Considerations Affecting Price
Decisions
Overall Marketing Strategy, Objectives, and Mix
Target costing
Organizational
starts with an ideal selling Considerations
price based on  Who should set prices?
consumer value
considerations and then  Who can influence
targets costs that will prices?
ensure that the price is
met.
10-27
Decisions
Pricing in Different Types of Markets

Pure competition
Monopolistic competition
The Market and Demand
Oligopolistic competition
Pure monopoly
Before setting prices, the marketer must understand the relationship between price and
demand for its products.
10-30
Decisions
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
10-31
Decisions
Price Elasticity of Demand
10-32
Decisions
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.
10-33
Decisions
The Economy and Other External Factors

Economic conditions
Reseller’s response to price
Government
Social concerns
10-34
Thank You

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MKTG 6113 Marketing Management

 Objective 1: Answer the question “What is a price?” and discuss the

FIGURE | 10.1 Considerations in Setting Price

Customer Value-Based Pricing

Customer Value-Based Pricing

Figure 10.2: Value-Based Pricing vs. Cost-Based Pricing

Customer Value-Based Pricing

Fixed costs are Variable costs

Costs as a Function of Production Experience

FIGURE | 10.4 Cost per Unit as a Function of Accumulated Production:

Break-even pricing (target return pricing)

Break-even pricing (target return pricing)

Overall Marketing Strategy, Objectives, and Mix

Pricing in Different Types of Markets

Analyzing the Price–Demand Relationship

The demand curve

The Market and Demand

Price Elasticity of Demand

The Economy and Other External Factors

Reseller’s response to price

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