Principles of Marketing by ProfessorBurgerQueen
Pricing: Understanding and Capturing Customer Value
- Price is the amount of money charged for a product/service, or the sum of all the
values that customers exchange for the benefits of having or using the
product/service
- If customers perceive that a product’s price is greater than its value, they won't buy it.
- If the company prices the product below costs, profits will suffer
- Between the two extremes, the right pricing strategy is one that delivers both value to
the customer, and profits to the company
Major Pricing Strategies
- Customer value-based pricing
- Cost-based pricing
- Competition-based pricing
● Value-based pricing uses the buyer’s perceptions of value, rather than the seller’s
cost
- It is customer driven
- Price is set to match perceived value
1. Assess customer needs and value perceptions
2. Set target price to match customer-perceived value
3. Determine costs that can be incurred
4. Design product to deliver desired value at target price
- Good-value pricing is offering just the right combination of quality and good service at
a fair price
- High-low pricing involves charging higher prices on an everyday basis, but running
frequent promotions to lower prices temporarily on selected items
- Everyday low pricing (EDLP) involves charging a constant everyday low price with
few or no temporary price discounts
- Value-added pricing attaches value-added features and services to differentiate the
company’’s offers, and thus, their higher prices
● Cost-based pricing sets prices based on the costs for producing, distributing, and
selling the product, plus a fair rate of return for effort and risk
- Total costs are the sum of the fixed and variable costs for any given level of
production (total costs = variable costs + fixed costs)
- Fixed costs are those that do not vary with production or sales level eg. rent,
electricity, interest, salaries
- Variable costs vary directly with the level of production eg. raw materials, packaging
Pricing: Understanding and Capturing Customer Value
- Price is the amount of money charged for a product/service, or the sum of all the
values that customers exchange for the benefits of having or using the
product/service
- If customers perceive that a product’s price is greater than its value, they won't buy it.
- If the company prices the product below costs, profits will suffer
- Between the two extremes, the right pricing strategy is one that delivers both value to
the customer, and profits to the company
Major Pricing Strategies
- Customer value-based pricing
- Cost-based pricing
- Competition-based pricing
● Value-based pricing uses the buyer’s perceptions of value, rather than the seller’s
cost
- It is customer driven
- Price is set to match perceived value
1. Assess customer needs and value perceptions
2. Set target price to match customer-perceived value
3. Determine costs that can be incurred
4. Design product to deliver desired value at target price
- Good-value pricing is offering just the right combination of quality and good service at
a fair price
- High-low pricing involves charging higher prices on an everyday basis, but running
frequent promotions to lower prices temporarily on selected items
- Everyday low pricing (EDLP) involves charging a constant everyday low price with
few or no temporary price discounts
- Value-added pricing attaches value-added features and services to differentiate the
company’’s offers, and thus, their higher prices
● Cost-based pricing sets prices based on the costs for producing, distributing, and
selling the product, plus a fair rate of return for effort and risk
- Total costs are the sum of the fixed and variable costs for any given level of
production (total costs = variable costs + fixed costs)
- Fixed costs are those that do not vary with production or sales level eg. rent,
electricity, interest, salaries
- Variable costs vary directly with the level of production eg. raw materials, packaging
