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price
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the amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service
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value based pricing
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uses the buyers' perceptions of value, not the sellers cost, as the key to pricing
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value-based pricing
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is customer driven
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cost-based pricing
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is product driven
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price
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is set to match perceived value
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good-value pricing
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is offering just the right combination of quality and good service at a fair price
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everyday low pricing
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involves charging a constant everyday low price with few or no temporary price discounts
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high low pricing
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involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items
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value-added pricing
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attaches value-added features and services to differentiate offers, support higher prices, and build pricing power
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cost-based pricing
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sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk
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fixed costs
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the costs that do not vary with production or sales level
rent
heat
interest
executive salaries
rent
heat
interest
executive salaries
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variable costs
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vary directly with the level of production (raw materials, packaging)
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total costs
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are the sum of the fixed and variable costs for any given level of production
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cost-plus pricing
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adds a standard makeup to the cost of the product
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cost-plus pricing benefits
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-Sellers are certain about costs
-Prices are similar in industry and price competition is minimized
-Buyers feel it is fair
-Prices are similar in industry and price competition is minimized
-Buyers feel it is fair
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cost-plus pricing disadvantages
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Ignores demand and competitor prices
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break-even pricing
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setting price to break even on the costs of making and marketing a product, or setting price to make a target return
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competition-based pricing
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setting prices based on competitors' strategies, prices, costs, and market offerings
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Target costing
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starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met
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Organizational Considerations
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Who should set prices?
Who can influence prices?
Who can influence prices?
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Pricing in different types of markets
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pure competition, monopolistic competition, oligopolistic competition, pure monopoly
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demand curve
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shows the number of units the market will buy in a given period at different prices
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Demand and price
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are inversely related
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Higher price =
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lower demand
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price elasticity
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a measure of the sensitivity of demand to change in price
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inelastic demand
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when demand hardly changes with a small change in price
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elastic demand
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when demand changes greatly with a small change in price
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The economy and other external factors
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economic conditions, reseller's response to price, government, social concerns
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