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Principles of Marketing
Pricing Products:
Understanding and
Capturing Customer Value
Factors to Consider When
Setting Prices
Value-based pricing uses the buyers’
perceptions of value, not the seller’s
cost, as the key to pricing.

10-6
Factors to Consider When
Setting Prices
Value-based pricing
•
Good-value pricing
•
Value-added pricing

10-7
Factors to Consider When
Setting Prices
Customer Perception of Value
Good-value pricing offers the right
combination of quality and good service to
fair price

10-8
Factors to Consider When
Setting Prices
Customer Perception of Value
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 promotion to
lower prices temporarily on selected items
10-9
Factors to Consider When
Setting Prices
Customer Perception of Value
Value-added pricing attaches value-added features
and services to differentiate offers, support higher
prices, and build pricing power
Pricing power is the ability to escape price
competition and to justify higher prices and margins
without losing market share
10-10
Factors to Consider When
Setting Prices
Company and Product Costs
Cost-based pricing involves setting prices
based on the costs for producing,
distributing, and selling the product plus a
fair rate of return for its effort and risk

10-11
Factors to Consider When
Setting Prices
Break-Even Analysis and Target Profit Pricing
Break-even pricing is the price at which total
costs are equal to total revenue and there is
no profit
Target profit pricing is the price at which the
firm will break even or make the profit it’s
seeking
10-19
Factors to Consider When
Setting Prices
Other Internal and External Considerations
Affecting Price Decisions
Target costing starts with an ideal selling
price based on consumer value
considerations and then targets costs that
will ensure that the price is met

10-24
New-Product Pricing Strategies
Pricing Strategies
•
•

Market skimming pricing
Market penetration pricing

11-4
New-Product Pricing Strategies
Pricing Strategies
Market skimming pricing is a strategy with
high initial prices to “skim” revenue layers
from the segment s willing to pay the higher
price. The company makes fewer but more
profitable sales.

11-5
New-Product Pricing Strategies
Pricing Strategies
Market penetration pricing sets a low initial
price in order to penetrate the market quickly
and deeply to attract a large number of
buyers quickly to gain market share

11-6
Product Mix Pricing Strategies
Pricing Strategies
•
•
•
•
•

Product line pricing
Optional product pricing
Captive product pricing
By-product pricing
Product bundle pricing
11-7
Product Mix Pricing Strategies
Pricing Strategies
Product line pricing takes into account the
cost differences between products in the
line, customer evaluation of their features,
and competitors’ prices.$299,$399
Optional product pricing takes into account
optional or accessory products along with
the main product ex. car buyer choose
CD charger, refrigerators with ice makers
11-8
Product Mix Pricing Strategies
Pricing Strategies
Captive product pricing involves products
that must be used along with the main
product ex blades for razor and film for
camera

11-9
Price Adjustment Strategies
Pricing Strategies
By-product pricing refers to products with
little or no value produced as a result of the
main product. Producers will seek little or no
profit other than the cost to cover storage
and delivery.prtroleum products, chemicals

11-10
Price Adjustment Strategies
Pricing Strategies

Product bundle pricing combines several
products and offering the bundle at a
reduced price.

11-11
Price Adjustment Strategies
Pricing Strategies
•
•
•
•
•
•
•

Discount and allowance pricing
Segmented pricing
Psychological pricing
Promotional pricing
Geographical pricing
Dynamic pricing
International pricing
11-12
Price Adjustment Strategies
Pricing Strategies
Discount : A straight reduction in prices on
purchases during the stated period of time
Allowance :Promotional money paid by
manufacturers to retailers in return for an
agreement to feature the manufacture’s
products in some way.
11-13
Price Adjustment Strategies
Pricing Strategies
Segmented pricing is used when a company
sells a product at two or more prices even
though the difference is not based on cost
•
Customer segment pricing
•
Product form segment pricing
•
Location pricing
11-16
Price Adjustment Strategies
Pricing Strategies
Customer segment pricing is when different
customers pay different prices for the same product
or service
Product form segment pricing is when different
versions of the product are priced differently but not
according to differences in cost
Location pricing is when the product is sold in
different geographic areas and priced differently in
those areas, even though the cost is the same
11-18
Price Adjustment Strategies
Pricing Strategies
Psychological pricing occurs when sellers
consider the psychology of prices and not
simply the economics. To judge the quality .
•
Reference prices are prices that buyers
carry in their minds and refer to when
looking at a given product
•
•

Noting current prices
Remembering past prices

11-20
Price Adjustment Strategies
Pricing Strategies
Promotional pricing is when prices are temporarily
priced below list price or cost to increase demand
•
Loss leaders
•
Special event pricing
•
Cash rebates
•
Low interest financing
•
Longer warrantees
•
Free maintenance
11-21
Price Adjustment Strategies
Pricing Strategies
Loss leaders are products sold below cost to attract
customers in the hope they will buy other items at
normal markups
Special event pricing is used to attract customers
during certain seasons or periods
Cash rebates are given to consumers who buy
products within a specified time
Low interest financing, longer warrantees, and
free maintenance lower the consumer’s “total
price”
11-22
Price Adjustment Strategies
Pricing Strategies
Risks of promotional pricing
•
Used too frequently, and copies by
competitors can create “deal-prone”
customers who will wait for promotions and
avoid buying at regular price
•
Creates price wars
11-23
Price Adjustment Strategies
Pricing Strategies
Geographical pricing is used for customers in
different parts of the country or the world
•
FOB pricing
•
Uniformed delivery pricing
•
Zone pricing
•
Basing point pricing
•
Freight absorption pricing

11-24
Price Adjustment Strategies
Pricing Strategies
FOB (free on board) pricing means that the goods
are delivered to the carrier and the title and
responsibility passes to the customer
Uniformed delivery pricing means the company
charges the same price plus freight to all customers,
regardless of location
11-25
Price Adjustment Strategies
Pricing Strategies
Zone pricing means that the company sets up two or
more zones where customers within a given zone
pay a single total price
Basing point pricing means that a seller selects a
given city as a “basing point” and charges all
customers the freight cost associated from that city
to the customer location regardless of the city from
which the goods are actually shipped
11-26
Price Adjustment Strategies
Pricing Strategies
Freight absorption pricing means the seller
absorbs all or part of the actual shipment
charge as an incentive to attract business in
competitive markets

11-27
Price Adjustment Strategies
Pricing Strategies
•
•

Dynamic pricing
International pricing

11-28
Price Adjustment Strategies
Pricing Strategies
Dynamic pricing is when prices are adjusted
continually to meet the characteristics and
needs of the individual customer and
situations
Both FOB / Freight Absorption / Zone / Special
Event / Cash Rebates
11-29
Price Adjustment Strategies
Pricing Strategies
International pricing is when prices are set in
a specific country based on country-specific
factors
•
Economic conditions
•
Competitive conditions
•
Laws and regulations
•
Infrastructure
•
Company marketing objective
11-30
Price Changes
Initiating Pricing Changes
•
•

Price cuts
Price increases

11-31
Price Changes
Initiating Pricing Changes
Price cuts is a reduction in price
•
Excess capacity
•
Increase market share
Price increases is an increase in selling price
•
Cost inflation
•
Increased demand and lack of supply
11-32
Price Changes
Buyer Reactions to Pricing Changes
Price cuts

•
•
•
•

New models will be available
Models are not selling well
Quality issues

Price increases

•
•
•

Product is “hot”
Company greed
11-33
Public Policy and Pricing
Pricing Within Channel Levels
Price fixing: Sellers must set prices without
talking to competitors
Predatory pricing: Selling below cost with the
intention of punishing a competitor or
gaining higher long-term profits by putting
competitors out of business
11-36

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Chapter eleven by waqas khichi 268

  • 1. 10 Principles of Marketing Pricing Products: Understanding and Capturing Customer Value
  • 2. Factors to Consider When Setting Prices Value-based pricing uses the buyers’ perceptions of value, not the seller’s cost, as the key to pricing. 10-6
  • 3. Factors to Consider When Setting Prices Value-based pricing • Good-value pricing • Value-added pricing 10-7
  • 4. Factors to Consider When Setting Prices Customer Perception of Value Good-value pricing offers the right combination of quality and good service to fair price 10-8
  • 5. Factors to Consider When Setting Prices Customer Perception of Value 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 promotion to lower prices temporarily on selected items 10-9
  • 6. Factors to Consider When Setting Prices Customer Perception of Value Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power Pricing power is the ability to escape price competition and to justify higher prices and margins without losing market share 10-10
  • 7. Factors to Consider When Setting Prices Company and Product Costs Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk 10-11
  • 8. Factors to Consider When Setting Prices Break-Even Analysis and Target Profit Pricing Break-even pricing is the price at which total costs are equal to total revenue and there is no profit Target profit pricing is the price at which the firm will break even or make the profit it’s seeking 10-19
  • 9. Factors to Consider When Setting Prices Other Internal and External Considerations Affecting Price Decisions Target costing starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met 10-24
  • 10. New-Product Pricing Strategies Pricing Strategies • • Market skimming pricing Market penetration pricing 11-4
  • 11. New-Product Pricing Strategies Pricing Strategies Market skimming pricing is a strategy with high initial prices to “skim” revenue layers from the segment s willing to pay the higher price. The company makes fewer but more profitable sales. 11-5
  • 12. New-Product Pricing Strategies Pricing Strategies Market penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share 11-6
  • 13. Product Mix Pricing Strategies Pricing Strategies • • • • • Product line pricing Optional product pricing Captive product pricing By-product pricing Product bundle pricing 11-7
  • 14. Product Mix Pricing Strategies Pricing Strategies Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices.$299,$399 Optional product pricing takes into account optional or accessory products along with the main product ex. car buyer choose CD charger, refrigerators with ice makers 11-8
  • 15. Product Mix Pricing Strategies Pricing Strategies Captive product pricing involves products that must be used along with the main product ex blades for razor and film for camera 11-9
  • 16. Price Adjustment Strategies Pricing Strategies By-product pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery.prtroleum products, chemicals 11-10
  • 17. Price Adjustment Strategies Pricing Strategies Product bundle pricing combines several products and offering the bundle at a reduced price. 11-11
  • 18. Price Adjustment Strategies Pricing Strategies • • • • • • • Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographical pricing Dynamic pricing International pricing 11-12
  • 19. Price Adjustment Strategies Pricing Strategies Discount : A straight reduction in prices on purchases during the stated period of time Allowance :Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacture’s products in some way. 11-13
  • 20. Price Adjustment Strategies Pricing Strategies Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost • Customer segment pricing • Product form segment pricing • Location pricing 11-16
  • 21. Price Adjustment Strategies Pricing Strategies Customer segment pricing is when different customers pay different prices for the same product or service Product form segment pricing is when different versions of the product are priced differently but not according to differences in cost Location pricing is when the product is sold in different geographic areas and priced differently in those areas, even though the cost is the same 11-18
  • 22. Price Adjustment Strategies Pricing Strategies Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics. To judge the quality . • Reference prices are prices that buyers carry in their minds and refer to when looking at a given product • • Noting current prices Remembering past prices 11-20
  • 23. Price Adjustment Strategies Pricing Strategies Promotional pricing is when prices are temporarily priced below list price or cost to increase demand • Loss leaders • Special event pricing • Cash rebates • Low interest financing • Longer warrantees • Free maintenance 11-21
  • 24. Price Adjustment Strategies Pricing Strategies Loss leaders are products sold below cost to attract customers in the hope they will buy other items at normal markups Special event pricing is used to attract customers during certain seasons or periods Cash rebates are given to consumers who buy products within a specified time Low interest financing, longer warrantees, and free maintenance lower the consumer’s “total price” 11-22
  • 25. Price Adjustment Strategies Pricing Strategies Risks of promotional pricing • Used too frequently, and copies by competitors can create “deal-prone” customers who will wait for promotions and avoid buying at regular price • Creates price wars 11-23
  • 26. Price Adjustment Strategies Pricing Strategies Geographical pricing is used for customers in different parts of the country or the world • FOB pricing • Uniformed delivery pricing • Zone pricing • Basing point pricing • Freight absorption pricing 11-24
  • 27. Price Adjustment Strategies Pricing Strategies FOB (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer Uniformed delivery pricing means the company charges the same price plus freight to all customers, regardless of location 11-25
  • 28. Price Adjustment Strategies Pricing Strategies Zone pricing means that the company sets up two or more zones where customers within a given zone pay a single total price Basing point pricing means that a seller selects a given city as a “basing point” and charges all customers the freight cost associated from that city to the customer location regardless of the city from which the goods are actually shipped 11-26
  • 29. Price Adjustment Strategies Pricing Strategies Freight absorption pricing means the seller absorbs all or part of the actual shipment charge as an incentive to attract business in competitive markets 11-27
  • 30. Price Adjustment Strategies Pricing Strategies • • Dynamic pricing International pricing 11-28
  • 31. Price Adjustment Strategies Pricing Strategies Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations Both FOB / Freight Absorption / Zone / Special Event / Cash Rebates 11-29
  • 32. Price Adjustment Strategies Pricing Strategies International pricing is when prices are set in a specific country based on country-specific factors • Economic conditions • Competitive conditions • Laws and regulations • Infrastructure • Company marketing objective 11-30
  • 33. Price Changes Initiating Pricing Changes • • Price cuts Price increases 11-31
  • 34. Price Changes Initiating Pricing Changes Price cuts is a reduction in price • Excess capacity • Increase market share Price increases is an increase in selling price • Cost inflation • Increased demand and lack of supply 11-32
  • 35. Price Changes Buyer Reactions to Pricing Changes Price cuts • • • • New models will be available Models are not selling well Quality issues Price increases • • • Product is “hot” Company greed 11-33
  • 36. Public Policy and Pricing Pricing Within Channel Levels Price fixing: Sellers must set prices without talking to competitors Predatory pricing: Selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business 11-36