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Cost-Based Pricing:: Pros: o Simple Easy To Use, Manage and Implement

The document discusses factors that affect pricing decisions, general pricing approaches, and types of pricing strategies. Key factors include internal considerations like costs and objectives, and external market conditions and competition. Common pricing approaches assess customer value and set prices relative to competitors. Types of pricing include cost-based pricing, value-based pricing, and market-based pricing. Price segmentation sets different prices for the same product based on attributes like customer type, location, or time period.

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53 views3 pages

Cost-Based Pricing:: Pros: o Simple Easy To Use, Manage and Implement

The document discusses factors that affect pricing decisions, general pricing approaches, and types of pricing strategies. Key factors include internal considerations like costs and objectives, and external market conditions and competition. Common pricing approaches assess customer value and set prices relative to competitors. Types of pricing include cost-based pricing, value-based pricing, and market-based pricing. Price segmentation sets different prices for the same product based on attributes like customer type, location, or time period.

Uploaded by

Baraa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

o Price: the value that a buyer exchanges for a good/service

Factors affecting pricing decisions:

o Internal:
 Marketing objective
 Marketing mix strategy
 Costs
 Organizational considerations
o External:
 Nature of the market and demand
 Competition
 Other environmental factors (economy, resellers, government)

General Pricing Approaches:

o Asses what value your consumers place on the product/service


o What should the appropriate process be?
 From company → to market place
 From marketplace → to company
 Looking at competitors

Types of pricing

Cost-based pricing:

o Let’s recover our costs and make a profit


o What it’s called: cost-based, markup, cost plus, target profit, ROI…
o Adding a standard → MARKUP cost or sales → Break-even pricing

Pros:

o Simple → easy to use, manage and implement


o Easily justifiable to buyers/ sellers

Cons:

o Unit or average cost varies with price → price affects volume and volume changes
average cost; model is “circular”
o Market/demand conditions never enter the model → what is your competitor’s price? Are
you customers willing to the pay the amount?

Value-based pricing
o Price is based on buyer’s perceptions of value
o Quantify consumer benefits relative to existing products

Cost-based vs. Value-based

Market-based

o Make price at the same level, above or below competition


o When demand elasticity is difficult to measure

Cost-based vs. Value-based vs. Market-based

Price adjustment strategies:

o Discounts and allowances


o Price segmentation
o Geographic pricing
o International pricing
o Psychological pricing
o Promotional pricing

Price segmentation:

o Two or more prices for the same product


o Also known as: price customization, price discrimination, segmented pricing
o Forget the following idea: “all customers are charged the same price”

Basis for segmentation:

o Customer, location , product form, time


o To be effective:
 Market must be segment-able
 Fences that ensure “high” types pay higher price
- Imposed fences: divide and identify customer type
- Induced fences: self-selection mechanism
 No arbitrage
 Incremental revenue is bigger than cost of segmentation
 Must be legal
 No customer resentment/antagonism

Price segmentation:

Group Pricing

o “Low” types identifiable


o Some examples:
 Senior discounts
 Student discounts

Location

o WTP depends on location


o Examples:
 Income differences → gas price in high income area vs. low income area
 Competitive differences → Starbucks at airport vs. non-airport

Transaction cost

o “Low” type has lower transaction (opp.) cost


o Examples:
 Coupons
 Haggling

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