There is a document I find on internet. It talking about pricing strategy, hope it useful for you

1. MARKETING
MANAGEMENT
Session 7
Pricing Strategy

2. OBJECTIVES
o Identify the three major pricing strategies and discuss
the importance of understanding customer value
perceptions, company costs, and competitor strategies
when setting prices.
o Identify and define the other important external and
internal factors affecting a firm’s pricing decisions.
o Describe the major strategies for pricing new
products.

3. 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

4. CONSIDERATIONS IN SETTING PRICE
9 - 4

5. VALUE-BASED PRICING VS.
COST-BASED PRICING
9 - 5

6. VALUE-BASED PRICING
2 types of value-based pricing:
 Good value pricing
Offering just the right combination of quality and
good service at a fair price to match with changing
economic conditions and consumer price perception.
 Value-added pricing
Attaching value-added features and services to
differentiate a company’s offer and charging higher
prices to increase company’s pricing power.

7. TYPE OF GOOD-VALUE PRICING
IN THE RETAIL LEVEL
 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.

8. COMPANY & PRODUCT COSTS
Types of Costs
 Fixed costs
Costs that do not vary with production or sales level
e.g. each month’s bills for rent, interest, employee
salaries.
 Variable costs
Costs that vary directly with the level of production
e.g. raw materials are needed in production process.
 Total costs = Fixed costs + Variable costs
The sum of the fixed and variable costs for any given
level of production.

9. TYPES OF COST-BASED PRICING
• Adding a standard markup to the cost of the product
Cost-plus pricing (markup pricing)
• Setting price to break even on the costs of making and
marketing a product, or setting price to make a target
return
Break-even pricing (target return pricing)
9 - 9

10. BREAK-EVEN CHART FOR DETERMINING TARGET
RETURN PRICE AND BREAK-EVEN VOLUME
9 - 10

11. PRICING METHOD
Cost-plus pricing (markup price)
Adding a standard markup to the cost of the product.
 Suppose a toaster manufacturer had the following costs and expected sales:
 Variable cost $10
 Fixed costs $300,000
 Expected unit sales 50,000
 unit cost = var cost +(fix cost/unit sales) = $10+($300,000/50,000) = $16
 Suppose the manufacturer wants to earn a 20% markup on sales. The
manufacturer’s markup price is given by the following:
 Markup price = unit cost / (1- desired return on sales) = $16/ (1-0.2) = $20
 The manufacturer would charge dealers $20 per toaster and make profit of $4
($20 - $16) per unit.
 The dealers, in turn, will mark up the toaster. If dealers want to earn 50
percent on the sales price, what is the mark up price for dealer?
$40

12. Break-Even Pricing (Target Profit Pricing)
Setting price to break even on the costs of making and marketing product,
or setting price to make a target profit.
 Break-Even Volume = Fix cost / (price – variable cost) = $300,000 / ($20-
$10) = 30,000
PRICING METHOD
If the company wants to make a target profit, it must sell more than
30,000 units at $20 each.

13. COMPETITION-BASED PRICING
 Competition-based pricing involves setting prices based on
competitors’ strategies, costs, prices, and market offerings. Consumers
will base their judgments of a product’s value on the prices that
competitors charge for similar products.
First, how does the company’s market offering compare with competitors’
offerings in terms of customer value?
• If consumers perceive that the company’s product or service provides
greater value  charge a higher price.
• If consumers perceive less value relative to competing products, 
charge a lower price or change customer perceptions.
how strong are current competitors, and what are their current pricing
strategies?
• If the company faces a host of smaller competitors charging high prices
relative to the value they deliver,  charge lower price
• If the market is dominated by larger, low-price competitors,  target
unserved market niches with value-added products at higher prices.

14. CONSIDERATIONS AFFECTING
PRICING DECISIONS
 Internal factors
 Overall marketing strategy, objectives, and mix
 Organizational considerations
 External factors
 Nature of the market and demand
 Economy
 Parties in the external environment
 Resellers, government, and social concerns
9 - 18

15. NEW-PRODUCT PRICING STRATEGIES
•Setting a high price for a new product to skim maximum
revenues layer by layer from the segments willing to pay the
high price
•Company makes fewer but more profitable sales
Market-skimming pricing
•Setting a low price for a new product to attract a large number
of buyers and a large market share
Market-penetration pricing

16. WHEN TO USE MARKET-SKIMMING PRICING
• Product’s quality and image supports its higher price
• Costs of low volume cannot be so high that they
cancel out the benefit of higher price
• Competitors should not be able to enter market easily
and undercut price
9 - 21

17. WHEN TO USE MARKET-PENETRATION
PRICING
• Market is highly price sensitive so a low price produces
more growth
• Production and distribution costs decrease as sales
volume increases
• Low price can help keep out the competition, and the
penetration pricer can maintain its low-price position
9 - 22

18. PRODUCT MIX PRICING STRATEGIES

19. PRICE ADJUSTMENT STRATEGIES
 Companies usually adjust their basic prices to account for
various customer differences and changing situations.

20. 12-25
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Types of discounts
 Cash discount
 Quantity discount
 Functional (trade)
discount
 Seasonal discount
 Allowances
 Trade-in allowances
 Promotional allowances
Strategies

21. 12-26
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Types of segmented
pricing strategies:
 Customer-segment
 Product-form pricing
 Location pricing
 Time pricing
 Certain conditions must
exist for segmented
pricing to be effective
Strategies

22. Conditions Necessary for
Segmented Pricing Effectiveness
PRICE ADJUSTMENT STRATEGIES
 Market is segmentable
 Lower priced segments
are not able to resell
 Competitors can not
undersell segments
charging higher prices
 Pricing must be legal
 Costs of segmentation can
not exceed revenues
earned
 Segmented pricing must
reflect real differences in
customers’ perceived value
PRICE ADJUSTMENT STRATEGIES

23. 12-28
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 The price is used to say
something about the
product.
 Price-quality relationship
 Reference prices
 Differences as small as five
cents can be important
 Numeric digits may have
symbolic and visual
qualities that
psychologically influence
the buyer
Strategies

24. 12-29
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Temporarily pricing
products below the list
price or even below cost
 Loss leaders
 Special-event pricing
 Cash rebates
 Low-interest financing,
longer warranties, free
maintenance
 Promotional pricing can
have adverse effects
Strategies

25. Promotional Pricing Problems
PRICE ADJUSTMENT STRATEGIES
 Easily copied by
competitors
 Creates deal-prone
consumers
 May erode brand’s
value
 Not a legitimate substitute
for effective strategic
planning
 Frequent use leads to
industry price wars which
benefit few firms
PRICE ADJUSTMENT STRATEGIES

26. 12-31
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Types of geographic
pricing strategies:
 FOB-origin pricing
 Uniform-delivered
pricing
 Zone pricing
 Basing-point pricing
 Freight-absorption
pricing
Strategies

27. 12-32
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Prices charged in a
specific country depend
on many factors
 Economic conditions
 Competitive situation
 Laws / regulations
 Distribution system
 Consumer perceptions
 Cost considerations
Strategies

28. PSYCHOLOGY PRICE
 TACTIC 1: The magic number 9
Biểu đồ của Gumroad’s diễn tả sự khác nhau giữa “giá tròn số”và giá có số đuôi “.99″

29.  TACTIC 2: Reduce the Left Digit By One
Source: The Psychology of Pricing: A Gigantic List of Pricing” by Nick Kolenda

30. TACTIC 3: KEEP THE SHIPPING AND
HANDLING SEPARATE

31. TACTIC 4: OFFER PAYMENTS IN
INSTALLMENTS

32. TACTIC 5: MENTION THE DAILY EQUIVALENCE

33. TACTIC 6: POSITION PRICES TOWARD THE
BOTTOM-LEFT

34. TACTIC 7: USE A SMALLER FONT SIZE

35. TACTIC 8: REMOVE THE COMMA WHEN POSSIBLE

36. TACTIC 10: USE “CONGRUENT” LANGUAGE

37. TACTIC 11: BE PRECISE WITH LARGE PRICES

38. TACTIC 12: EXPOSE PEOPLE TO ANY HIGH NUMBER

39. TACTIC 13: VISUALLY DISTINGUISH
HIGHER PRICE COMPARISONS

40. TACTIC 14: OFFER A DECOY PRODUCT
Economist subscription
Web Only: $59
Print Only: $125
Web and Print: $125

41. TACTIC 15: REDUCE THE “PAIN OF PAYING”
REMOVE THE DOLLAR SIGN
Only use this tactic in formats where
customers will expect a price to appear
(e.g., restaurant menus).

42. TACTIC 16: BUNDLE YOUR PRODUCT

43. TACTIC 17: FOLLOW THE “RULE OF 100”
 Consider a $50 blender. Which discount seems
like a better deal: 20% off vs. $10 off?

44. TATIC 18: PROVIDE A REASON FOR THE
DISCOUNT

45. TACTIC 19: AVOID DISCOUNTS WITH PRECISE
NUMBERS

46. TACTIC 20: USE MORE FREQUENT (YET
SMALLER) PRICE INCREASES

47. TACTIC 21: DOWNSIZE A FEATURE BESIDES PRICE

48. TACTIC 22: DON’T USE BAIT-AND-SWITCH
PRICING

49. FINAL TACTIC: COMMUNICATING
YOUR VALUE
 What makes your product special?
 How is it better than other products?
 Why would customers enjoy it?

50. PRICE CHANGES: INITIATING PRICE CUTS
• Reasons for price cuts
• Excess capacity
• Falling demand in face of strong competitive price or
a weakened economy
• Attempt to dominate market through lower costs
9 - 55

51. PRICE INCREASES
• Can greatly improve
profits and may be
initiated due to:
• Cost inflation
• Overdemand
9 - 56
When gasoline prices rise rapidly, angry
consumers often accuse the major oil companies
of enriching themselves by gouging customers

52. FIGURE 9.5 - ASSESSING AND RESPONDING
TO COMPETITOR PRICE CHANGES