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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.