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Topic 7 - Pricing Strategies

This document discusses pricing strategies and objectives. It begins by defining price as the amount charged for a product or service. It then outlines three major pricing strategies: customer value-based pricing which sets price based on customer perceived value; cost-based pricing which sets price based on costs plus profit; and competition-based pricing which sets price based on competitors. It also describes strategies for pricing new products, including market skimming which charges high initial prices, and market penetration which uses low initial prices to gain market share. Finally, it discusses setting prices across a product mix or line to maximize total profits.

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40 views23 pages

Topic 7 - Pricing Strategies

This document discusses pricing strategies and objectives. It begins by defining price as the amount charged for a product or service. It then outlines three major pricing strategies: customer value-based pricing which sets price based on customer perceived value; cost-based pricing which sets price based on costs plus profit; and competition-based pricing which sets price based on competitors. It also describes strategies for pricing new products, including market skimming which charges high initial prices, and market penetration which uses low initial prices to gain market share. Finally, it discusses setting prices across a product mix or line to maximize total profits.

Uploaded by

04160416
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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PRICING

TOPIC 7
Learning Objectives

7.1 Answer the question “What is a price?” and discuss the importance of pricing
in today’s fast-changing environment.
7.2 Identify and understand the three major pricing strategies
7.3 Describe the major strategies for pricing new products.
7.4 Explain how companies find a set of prices that maximizes the profits from the
total product mix
Learning Objectives 7.1

7.1 Answer the question “What is a price?” and


discuss the importance of pricing in today’s fast-
changing environment.
What is Price?

 Priceis the amount of money charged for a


product or service, or the sum of all the values that
customers exchange for the benefits of having or
using the product or service.
Learning Objectives 7.2

7.2 Identify and understand the three


major pricing strategies
Major Pricing Strategies
Major Pricing Strategies

Customer Value-Based Pricing


the customer will decide whether a product’s price is right.
Pricing decisions, like other marketing mix decisions, must start
with customer value. Effective customer-oriented pricing
involves understanding how much value consumers place on the
benefits they receive from the product and setting a price that
captures that value.
Value based pricing
Major Pricing Strategies

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.
Major Pricing Strategies

Competition-based pricing is setting prices based on


competitors’ strategies, costs, prices, and market offerings.
Competition based pricing
Learning Objectives 7.3

7.3 Describe the major strategies for pricing new products.


New Product Pricing Strategies

Market-skimming pricing strategy sets


high initial prices to “skim” revenue layers
from the market.
 Product quality and image must support
the price.
 Buyers must want the product at the
price.
New Product Pricing Strategies

Market-penetration pricing
involves setting a low price for a
new product in order to attract a
large number of buyers and a
large market share.
ACTIVITY 1 – Short Answer Question

 Distinguish between market skimming pricing and market


penetration pricing strategies

(4 Marks)
Learning Objectives 7.4

7.4 Explain how companies find a set of


prices that maximizes the profits from the
total product mix
Product Mix Pricing Strategies

Product line pricing takes into account the cost differences between products in the
line, customer evaluations of their features, and competitors’ prices.
Product Mix Pricing Strategies

 Optional product
pricing takes into
account optional or
accessory products along
with the main product.
Product Mix Pricing Strategies

Captive product
pricing sets prices
of products that
must be used along
with the main
product.
Product Mix Pricing Strategies

By-product pricing
sets a price for by-
products in order to
make the main
product’s price more
competitive.
Product Mix Pricing Strategies

 Product bundle pricing combines several


products at a reduced price.

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