This document discusses pricing methods and concepts. It covers pricing objectives, approaches to setting price like markup pricing and target return pricing, and using price as a communication tool. Key factors in pricing decisions are competitive environment, product differentiation, costs, and customer perceived value. Pricing aims to maximize profits while maintaining market share and communicating quality.
This document discusses pricing methods and concepts. It covers pricing objectives, approaches to setting price like markup pricing and target return pricing, and using price as a communication tool. Key factors in pricing decisions are competitive environment, product differentiation, costs, and customer perceived value. Pricing aims to maximize profits while maintaining market share and communicating quality.
This document discusses pricing methods and concepts. It covers pricing objectives, approaches to setting price like markup pricing and target return pricing, and using price as a communication tool. Key factors in pricing decisions are competitive environment, product differentiation, costs, and customer perceived value. Pricing aims to maximize profits while maintaining market share and communicating quality.
This document discusses pricing methods and concepts. It covers pricing objectives, approaches to setting price like markup pricing and target return pricing, and using price as a communication tool. Key factors in pricing decisions are competitive environment, product differentiation, costs, and customer perceived value. Pricing aims to maximize profits while maintaining market share and communicating quality.
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Chapter 6, Lesson 3:
Pricing Methods Learning Objectives To be familiar with the different price- quality points • To have alternative methods for setting a product’s price • To have a greater understanding of using price as a communication tool Some Concepts to Consider in Terms of Pricing High or Pricing Low In highly competitive markets, having higher prices can indeed lead to lower sales, thereby putting your business at risk as you have probably priced yourself out of the market. This is especially true if your brand is not differentiated from the competition.
On the other hand, if your product has no
substitutes and no competition, then high markups can be sustained and the market may learn to accept the set prices as givens. This gives you a great opportunity to generate extraordinary profits. Some Concepts to Consider in Terms of Pricing High or Pricing Low While offering low prices can indeed be a tool for attracting the market to your products, what you do not want is a situation where you offer low prices and attract a lot of buyers yet without realizing that your low margins actually do not even cover your total costs. Price is a very sensitive element because it actually can make or break your product’s profitability. If the price is too low, you could lose money and at worst be driven out of business. If the price is too high, you could price your product out of the market and you could lose buyers. Some Concepts to Consider in Terms of Pricing High or Pricing Low Communication plays a vital role in this balancing act. A higher price helps to communicate higher quality, while a lower price, if done right, can communicate good value.
In the end, pricing is not just about recovering
your investment but also all about communication. How Can You Tell If the Price of a Produc t Is High, Low or Medium?
The fact is, you really cannot tell if a price is high or
low until you get to compare it with a point of reference.
For most cases, the point of reference will be the
market leader because, by definition, it is the most popular product in the category. General Price-Quality Matrix Pricing Objectives
• Survival
• Current profit maximization
• Market share leadership
• Product quality leadership
Different Approaches in Setting the Price • Markup Pricing Steps: 1. Here, the cost of producing the product is first estimated, with cost often being primarily defined as the variable costs of a product or the costs of its direct components. 2. Once the cost is estimated, a standard markup percentage is pegged on. Q: Why use a standard markup in the first place? A: It’s because it makes the pricing process easier. Different Approaches in Setting the Price • Target Return Pricing Similar to markup pricing, except that it is based on the Return on Investment requirements of the firm. The formula for this is: Different Approaches in Setting the Price • Perceived Value Pricing A proactive and marketing-based pricing method whereby the value of the product to the market becomes the basis for the price Require some market research in order to determine just how much the target market believes the product is worth to them Q: What if the market undervalues the product? A: Marketers’ would have to revamp the product—packaging, quality, and other communication points—in order to convince the market that it is actually worth far more. Different Approaches in Setting the Price • Going-rate Pricing Basing price on industry rates rather than on either costs or market perceptions Is proactive because it uses price as a communication tool to inform the market about the value of the product Can be used to aggressively send messages about your product vis-à-vis the competition
