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Chapter 11 - Price

This document provides an overview of different pricing strategies and concepts. It discusses determining price based on costs of production (cost-based pricing), consumers' perceived value (value-based pricing), market conditions like competition (market-penetration pricing, market-skimming pricing), and adjusting prices based on factors like discounts, location, or time (dynamic pricing, geographical pricing, promotional pricing). The goal of pricing is to set a price that covers costs but also generates demand, taking into account market forces, competitors' prices, and consumers' price sensitivity.

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28 views

Chapter 11 - Price

This document provides an overview of different pricing strategies and concepts. It discusses determining price based on costs of production (cost-based pricing), consumers' perceived value (value-based pricing), market conditions like competition (market-penetration pricing, market-skimming pricing), and adjusting prices based on factors like discounts, location, or time (dynamic pricing, geographical pricing, promotional pricing). The goal of pricing is to set a price that covers costs but also generates demand, taking into account market forces, competitors' prices, and consumers' price sensitivity.

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
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CHAPTER 11 –PRICE

- Price – 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
- Product costs (price floor=no profits below this price)
- Consumer perception of value (price ceiling=no demand above this price)
- Value based pricing – setting price based on buyers’ perceptions of value rather than on
the seller’s cost
o Good-value pricing – offering just the right combination of quality and good
service at a fair price
o Value-added pricing – attaching value-added features and services to
differentiate a company’s offers and charging higher prices
- Cost-based pricing – setting prices based on costs of production, distributing, and selling
the product plus a fair rate of return for effort and risk
o Fixed costs (overhead) – costs that do not vary with production or sales level
o Variable costs – costs that vary directly with the level of production
o Total costs – the sum of the fixed and variable costs for any given level of
production
- Experience curve (learning curve) – the drop in the average per-unit production cost
that comes with accumulated production experience
- Cost-plus pricing – adding a standard markup to the cost of the product
- Break-even pricing (target profit pricing) – setting price to break even on the costs of
making and marketing a product, or setting price to make a target profit
- Target costing – pricing that starts with an ideal selling price, then targets costs that will
ensure that the price is met
- The market and demand
o Pure competition – many buyers and sellers trading in a uniform commodity
such as wheat. No seller has much effect on the going market price. A seller
cannot charge more than the going price
o Monopolistic competition – many sellers who trade over a range of prices rather
than a single market price. A range of prices occurs because the sellers can
differentiate their offers to buyers
o Oligopolistic competition –a few sellers who are highly sensitive to each other’s
pricing and marketing strategies. The product can be uniform or not. There are
few sellers due to high entry barriers
o Pure monopoly – the market consists of one seller
- Demand curve – a curve that shows the number of units the market will buy in a given
time period, at different prices that might be charged
- Price elasticity – a measure of the sensitivity of demand to changes in price

New product pricing strategies:


- Market-skimming pricing – setting a high price for a new product to skim maximum
revenues layer by layer from the segments willing to pay the high price; the company
makes fewer but more profitable sales
- Market-penetration pricing – setting a low price for a new product to attract a large
number of buyers and a large market share

Product mix pricing strategies:


- Product line pricing – setting the price steps between various products in a product line
based on cost differences between the products, customer evaluations of different
features and competitors prices
- Optional-product pricing – the pricing of optional or accessory products along with a
main product
- Captive product pricing – setting a price for products that must be used along with a
main product, such as blades for a razor and ink for a printer
- By-product pricing – setting a price for by-products to make the main product’s price
more competitive
- Product bundle pricing – combining several products and offering the bundle at a
reduced price

Price adjustment strategies:


- Discount – a straight reduction in price on purchases during a stated period of time
- Allowance – promotional money paid by manufacturers to retailers in return for an
agreement to feature the manufacturer’s products in some way
- Segmented pricing – selling a product or service at two or more prices, where the
difference in prices in not based on differences in costs
- Psychological pricing – a pricing approach that consider the psychology of prices and not
simply the economics; the price is used to say something about the product (LV)
- Reference prices – prices that buyers carry in their minds and refer to when they look at
a given product
- Promotional pricing – temporarily pricing products below the list prices and sometimes
even below cost, to increase short run sales
- Geographical pricing – setting prices for different geographical locations
o FOB-origin pricing – a geographical pricing strategy in which goods are placed
free on board a carrier; the customer pays the freight from the factory to the
destination
o Uniform-delivery pricing – a geographical pricing strategy in which the company
charges the same price plus freight to all customers regardless of their location
o Zone pricing – a geographical pricing strategy in which the company sets up two
or more zones. All customers within a zone pay the same total price; the more
distant the one, the higher the price
- Dynamic pricing – adjusting prices continually to meet the characteristics and needs of
individual customers and situations

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