10/20/2020

Pricing and value

What is price?
the sum of all the values that consumers give
up in order to gain the benefits of having or
using a product or service.

10
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Pricing strategies
Considerations in setting price VALUE-BASED COST-BASED
Assess needs and value
Design a product
perceptions

Setting Set target price Determine costs

Prices
Determine costs Set price based on cost

Design a product Convince buyers of the value

Value-based Value-based pricing

pricing GOOD VALUE VALUE ADDED
uses buyers’
perceptions of value,
not sellers’ cost, as
the key to pricing.

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

1
 10/20/2020

Good Value Value Added perceptions

perceptions https://www.brandsvietnam.com/congdong/topic/5542-Tang-gia-tri-san-pham-
nho-dich-vu-khach-hang

Everyday low pricing

EDLP

High - Low

Cost-based
pricing Cost + Pricing
MARKUP

PRICE
PRODUCT COST

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Competition-based Pricing Pricing

• Setting prices based on competitors’ strategies
strategies, costs, prices, and market offerings.
• Consumers will base their judgments of a
product’s value on the prices that competitors
charge for similar products.

11

2
 10/20/2020

New product pricing strategies Market - Skimming

high initial prices to “skim”
revenue layers from the
Market Skimming market
• Product quality and image must
support the price
• Buyers must want the product at
Market Penetration the price
• Costs of producing the product in
small volume should not cancel
the advantage of higher prices
• Competitors should not be able
to enter the market easily

Product mix
Market - Penetration pricing strategies
low price
• Market are highly price
sensitive Product Line Optional Product Captive Product
Pricing Pricing Pricing
• Cost must reduce when the
volume increase
• Must maintain the low-price
position Product Bundle
By-product Pricing
Pricing

Product Line Pricing Optional Product Pricing

takes into account the cost differences between products in the
line, customer evaluation of their features, and competitors’ prices • takes into account optional or accessory
products along with the main product

3
 10/20/2020

Captive – product pricing By – product pricing

• involves products that must be used along refers to products with little or no value
with the main product produced as a result of the main product.
Producers will seek little or no profit other than
the cost to cover storage and delivery
https://dantri.com.vn/kinh-doanh/ga-my-ga-han-quoc-sieu-re-don-dap-do-ve-viet-nam-
20191018100318559.htm

Product bundle pricing Price-Adjustment Strategies

• combines several products at a reduced price
Discount and
Segmented Psychological
allowance
pricing pricing
pricing

Dynamic Geographic Promotional

pricing pricing pricing

International
pricing

Discount and allowance pricing

Segmented
reduces prices to reward customer pricing
responses such as paying early or
promoting the product
• Discounts • To be effective:
– Market must be segment able
Cash discounts, quantity discounts, functional – Segments must show
discount different degrees of demand
• Allowances – Watching the market cannot
exceed the extra revenue
Trade-in allowances, promotional obtained from the price
difference
allowances – Must be legal

4
 10/20/2020

Psychological pricing Promotional pricing

is when prices are temporarily priced below list
price or cost to increase demand
• Loss leaders
• Special event pricing
• Cash rebates
• Low-interest financing
• Longer warrantees
• Free maintenance

Geographic
Promotional pricing pricing
• Risks of promotional pricing
– Used too frequently FOB Origin
– Copies by competitors can create “deal-prone” Uniform delivered
customers
– Erode the brand-value Zone
– Creates price wars.
Basing point

Freight absorption

Price Cuts Responding to Price

Changes
Increases Reduce price to match
competition

Maintain price but raise the

perceived value
Competitors’
Improve quality and
price changes increase price

Launch a lower-price brand

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall