Chapter 10
Price: is the amount of money charged for a product or service; the sum of the values that
consumers exchange for the benefits of having or using the product or service. Is the only
element in the marketing mix that produces revenue; all other elements represent costs.
Major pricing strategies: customer value-based pricing, cost-based pricing and
competition-based pricing.
-Customer value-based pricing: understanding how much value consumers place on the
benefits they receive from the product and setting a price that captures that value. Uses the
buyers’ perceptions of value, not the sellers cost, as the key to pricing. Price is considered
before the marketing program is set. Customer driven.
Cost-based pricing product driven.
- Good value pricing: offers the right combination of quality and good service at a
fair price.
- Everyday low pricing: involves charging a constant, everyday low price with few
or no temporary price discounts. Walmart.
- High-low pricing: involves charging higher prices on an everyday basis but
running frequent promotions to lower prices temporarily on selected items.
- Value-added pricing: attaches value-added features and services to differentiate
a company’s offers and charging higher prices.
Cost-based pricing: setting prices based on the costs for producing, distributing and selling
the product plus a fair rate of return for effort and risk.
- Fixed/overhead costs: costs that do not vary with production or sales level.
-Rent
-Heat
-Interest
-Executive salaries
- Variable cost: the costs that vary directly with the level of production.
-Packaging
-Raw materials
- Total cost: the sum of the fixed and variable costs for any given level of
production.
Experience or learning curve is when average cost falls as production increases because
fixed costs are spread over more units.
Cost-plus pricing: adds a standard markup to the cost of the product.
Benefits:
-Sellers are certain about costs
-Prices are similar in industry and price competition is minimised.
-Buyers feel it is fir.
Disadvantages:
-Ignores demand and competitor prices.
Unit cost = variable cost + fixed costs/unit sales
Markup price = unit cost /(1-desored return on sales)
Price: is the amount of money charged for a product or service; the sum of the values that
consumers exchange for the benefits of having or using the product or service. Is the only
element in the marketing mix that produces revenue; all other elements represent costs.
Major pricing strategies: customer value-based pricing, cost-based pricing and
competition-based pricing.
-Customer value-based pricing: understanding how much value consumers place on the
benefits they receive from the product and setting a price that captures that value. Uses the
buyers’ perceptions of value, not the sellers cost, as the key to pricing. Price is considered
before the marketing program is set. Customer driven.
Cost-based pricing product driven.
- Good value pricing: offers the right combination of quality and good service at a
fair price.
- Everyday low pricing: involves charging a constant, everyday low price with few
or no temporary price discounts. Walmart.
- High-low pricing: involves charging higher prices on an everyday basis but
running frequent promotions to lower prices temporarily on selected items.
- Value-added pricing: attaches value-added features and services to differentiate
a company’s offers and charging higher prices.
Cost-based pricing: setting prices based on the costs for producing, distributing and selling
the product plus a fair rate of return for effort and risk.
- Fixed/overhead costs: costs that do not vary with production or sales level.
-Rent
-Heat
-Interest
-Executive salaries
- Variable cost: the costs that vary directly with the level of production.
-Packaging
-Raw materials
- Total cost: the sum of the fixed and variable costs for any given level of
production.
Experience or learning curve is when average cost falls as production increases because
fixed costs are spread over more units.
Cost-plus pricing: adds a standard markup to the cost of the product.
Benefits:
-Sellers are certain about costs
-Prices are similar in industry and price competition is minimised.
-Buyers feel it is fir.
Disadvantages:
-Ignores demand and competitor prices.
Unit cost = variable cost + fixed costs/unit sales
Markup price = unit cost /(1-desored return on sales)
