Download Price is what we pay for what we get

Price is what we pay for what we get. It is the amount of money needed to
acquire a product.
Value is the quantitative measure of the worth of a product in an exchange
for something else. So, price is value expressed in monetary terms.
Pricing objectives
Profit-oriented
 To achieve a target return, or to maximise profits.
Sales-oriented
 To increase sales volume, or to maintain or increase market
share.
Status-quo oriented
 To stabilise prices, or to meet competition
Understanding Pricing of a product
Economics is important in understanding pricing
Market Forces help determine the price of a product/service
Know the Cost Price
Be Competitive
Attractive to the Target Customer
Prices change over time
Price elasticity of demand
 The effect that price change has on the number of units sold and
the total revenue.
Price-setting methods
 Cost-plus—setting price of unit based on total cost plus desired
profit, or
 Marginal cost plus desired profit.
Demand-based pricing
Value-based pricing.
 Includes tangible and intangible attributes
 Objective is to determine the level of customer satisfaction a
customer wants and what price they are prepared to pay for it.
 Also the price firm believes customer will pay.
 Demand-based pricing of services.
Competition-based pricing
 Firm’s price is influenced by what the competition is charging.
1. Follow the leader (main competitor)
2. Mark-up
3. Above, at or below
 Firm’s price is influenced by what the competition is charging.
1. Follow the leader (main competitor)
2. Mark-up
3. Above, at or below
Price-setting process
Market price skimming (referred to as ‘skimming’)—this is where
the marketer sets a high price to attract target market.
 Normally used to introduce new products to the market that
attract the innovator market.
Market-penetration pricing— marketer sets low market entry price.
 Usually to reach mass markets and discourage competition.
Other pricing strategies
 One-price strategy—seller charges one price to all similar
customers who buy similar quantities of a product.
 Flexible-price strategy—similar customers might pay different
price when buying similar quantities.
 Price-lining—seller selects a limited number of prices that will be
set for products in all store locations.
 Odd-pricing—(psychological pricing)
 An odd price is set to create a perception of value or
prestige, eg $2.99 instead of $3.00
(customer perceives price to be closer to $2.00).
 Loss-leader pricing—a promotional pricing strategy where seller
sets a very low price, at cost or below cost, to attract target market
and entice them to buy other products with loss-leader purchase.
 R.R.P. (recommended retail price)— manufacturer recommends a
price to seller to assist in maintaining brand equity / image.
 Changing price—firm may choose to change price depending on
varying circumstances.