2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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)

15. 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

16. 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.

17. 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

18. 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

19. 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