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10

  1. 1. CUSTOMER PERCEPTIONS OF VALUE The first factor to consider for pricing is the customer perceived value. When customers’ buy a product they exchange something of value (the price) in order to get something of value (the benefits of having or using the product) Effective way of setting price involves understanding how much value consumers place on the benefits they receive from the product and then setting a price that capture this value
  2. 2. VALUE AND COST BASED PRICING Value based pricing uses the buyers’ perception of value rather than the sellers‘ cost Value based pricing means that the marketers cannot design a product and marketing program and then set the price Price should be considered along with the other marketing mix variables before the marketing program is set Cost based pricing uses the sellers’ cost rather than the buyers’ perception of value to set the price. Marketers design the product and then set a price that cover the cost, then convince the buyer that the product value at this price is good for purchase
  3. 3. VALUE AND COST BASED PRICING Cost based pricing Value based pricing Design a good product Determine product cost Set price based on cost Convince buyers of product’s vale Assess customer needs and value perception Set target price to match customer perceived value Determine cost that can be incurred Determine product to deliver desired value at target price
  4. 4. GOOD VALUE PRICING Companies have changed their pricing approaches to cope with the economic conditions and consumer perception price A good way for this is to follow good value pricing strategy (offering just the right combination of quality and good service at a fair price) This includes introducing less expensive versions of established brand name product (EX: value menus at expensive restaurant) Good value pricing involves redesigning the existing brands to offer more quality for a given price, or the same quality for less
  5. 5. VALUE ADDED PRICING Another strategy to cope with the economic conditions and consumer perception price is value added pricing Value added pricing is the strategy of attaching value added features to differentiate a company’s offers and then charge higher price Thus building company’s pricing power (power to escape competitors price and to establish higher prices) This strategy is suitable for commodity products, which are characterized by little differentiation and intense price competition
  6. 6. COMPANY PRODUCT COST The second factor to consider for pricing is the company’s product cost This includes considering costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk Types of costs: Fixed cost: cost that do not vary with production or sales level Variable costs: costs that vary directly with the level of production Total costs: the sum of fixed and variable costs for any given level of production
  7. 7. PRODUCT PRICING STRATEGIES Market skimming pricing setting a high price for a new product to skim the maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales Ex: introducing new mobile with new technology, 3D TV Market skimming is suitable under some conditions: • Product’s quality and image must support its higher price • Enough buyer are willing to buy the product at this price • The cost of producing the product cannot be so high that they cancel the advantage of charging more • Competitors cannot enter market easily to undercut high price
  8. 8. PRODUCT PRICING STRATEGIES Market penetration pricing: setting a low price for a new product in order to attract a large number of buyers and larger market share Market penetration is suitable under some conditions: • The market must be highly sensitive so that a low price produces more market growth • Production and distribution cost must fall as sales volume increase • Low price must help keep out competition, otherwise price advantage may be lost
  9. 9. PRODUCT MIX PRICING STRATEGIES Product line pricing: Setting different prices across various products in a product line based on cost differences between the products, customer evaluations of different product’s features, and competitor’s prices Ex: selling different sizes (juice) or colors of a product Optional product pricing: The optional or accessory products along with a main product Ex: basic model and full option or high line cars
  10. 10. PRODUCT MIX PRICING STRATEGIES Captive product pricing: setting a price for a product that must be used along with the main product. Often the product price is low but set high price for supplies Ex: film with a camera Consumers may replace the brand due to expensive supplies In case of service captive product pricing is called two part pricing Fixed free plus variable usage (fixed price should be low enough to persuade customer to buy the service, profits can be gained from variable fees) Ex: mobile companies charge flat rate for basic calling plans, then charge for minutes over the plan
  11. 11. PRODUCT MIX PRICING STRATEGIES By product pricing: setting a price for by products in order to make the main product’s price more competitive Ex: Shell keep its natural gas more competitive by using a by product from gas called (Sulphur) in road construction Product bundle pricing: Combining several products and offering the bundle at a reduced price Ex: Combo meals at fast food restaurant
  12. 12. PRICE ADJUSTMENT STRATEGIES Discount and allowance strategies: Cash discount Includes a price reduction for those who pay their bills promptly Quantity discount price reduction for buyer who buy large volume Functional discount or trade discount is offered to trade channel members who perform certain functions such as selling or storing Seasonal discount is a price reduction to buyers who buy products or service out of season. This help production during entire year Ex: hotel offering discount outside of tourist season
  13. 13. PRICE ADJUSTMENT STRATEGIES Segmented pricing: Selling a product or service at two or more prices, where the differences in prices is not based on the differences in costs Different customer pay different prices for the same product Ex: museum tickets for students Location pricing: a company charge different prices for different locations, even if the cost of offering each location is the same Ex: setting in cinema (different locations have different ticket price) Time pricing: prices vary through season (airline tickets)
  14. 14. PRICE ADJUSTMENT STRATEGIES For segmented pricing strategy to be effective certain conditions must exist: • Segmented prices should reflect real differences in customers’ perceived value • Consumers in higher price segment must feel that they are getting extra value, at the same time consumers in low price segment should not feel as second class • The market must be segmentable and the segments must show different degree of demand • The cost of segmentation cannot exceed extra revenue obtained from different prices
  15. 15. PRICE ADJUSTMENT STRATEGIES Psychological pricing: A pricing approach that considers the psychology of prices and not simply the economics, the price is used to say something about the product Ex: higher prices perceived as higher quality Another aspect of Psychological pricing is reference prices (prices that buyers carry in their minds and refer to when look at a given product) The reference prices is formed by noticing current prices or remembering past experience.
  16. 16. PRICE ADJUSTMENT STRATEGIES Sellers can use reference prices when setting prices Ex: company could display its product next to more expensive ones in order to imply that it belongs in the same class Another way of using reference prices is price matching guarantee: guarantee that one store prices is lower than another
  17. 17. PRICE ADJUSTMENT STRATEGIES Promotional prices: temporary pricing product below the list price, sometimes even below cost to increase short run sales This help to create buying excitement and energy This includes offering special event pricing in certain seasons Offer longer warranties or free maintenance as temporary promotional price
  18. 18. PRICE ADJUSTMENT STRATEGIES Promotional price can have adverse effect : • Used too frequently and copied by competitors • Create customer who wait until a brand is on sale • Reduced price can damage the brand’s value in the eyes of certain customers • Marketers sometimes uses promotional pricing as a quick fix instead of working through the difficult process of developing longer term strategies for building their brand • Lead to industry price war

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