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3 general pricing approaches
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Customer value-based pricing, Cost-based pricing, Competition-based pricing
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Customer value-based pricing
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based on buyers' perceptions of value due to the features/benefits.
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Cost-based pricing
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based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk
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Competition-based pricing
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based on competitors' strategies, prices, costs and market offerings
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2 value-based pricing strategies
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"Good-value" pricing and "Value-added" pricing
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"Good-value" pricing
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More or same for less, Less for much less
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"Value-added" pricing
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More for same, More for more
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value-based pricing strategies
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use buyer's perceptions of value as the key to pricing
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2 cost-based pricing strategies
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Cost-plus pricing and Break-even pricing
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Cost-plus pricing
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a method in which the selling price is set by evaluating all variable costs a company incurs and adding a markup percentage to establish the price
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Break-even pricing
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the price at which total costs are equal to total revenue and there is no profit
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Types of Costs
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fixed costs, variable costs, total costs
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Fixed Costs
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Costs that do not vary with production or sales level (e.g., rent, heat, interest, executive salaries)
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Variable cost
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Costs that vary with the level of production (e.g., packaging, raw materials, labor)
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Total cost
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The sum of the fixed and variable costs for any given level of production
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Break-even point
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the quantity at which total costs are equal to total revenue and there is no profit
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new product pricing strategies
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Market-skimming pricing and Market-penetration pricing
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Market-skimming pricing
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Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price
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"Skim the cream" pricing
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involves selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers
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Market-penetration pricing
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- Setting a low price for a new product in order to attract a large number of buyers, build a large market share, and deter competitors
- Penetration pricing involves selling to the whole market at one low price
- Penetration pricing involves selling to the whole market at one low price
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product mix pricing strategies
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1. product line pricing
2. optional product pricing
3. captive product pricing
4. product-bundle pricing
2. optional product pricing
3. captive product pricing
4. product-bundle pricing
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product line pricing
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Setting the price steps between various products in a product line
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optional product pricing
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Pricing optional or accessory products sold with the main product
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product-bundle pricing
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Combining a bundle of several products and offering a reduced price
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captive product pricing
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Pricing products that must be used with the main product Captive-product pricing
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price adjustment strategies
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Psychological pricing and Segmented pricing
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Segmented pricing
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Adjusting prices to allow for differences in customers, products, or locations, where the difference in price is not based on the cost
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Psychological pricing
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Adjusting prices for psychological effects, not simply economic effects
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