MODULE 4.0 PRICE DISCUSSION OUTLINEPRINCIPLES OF MARKETING17thGlobal EditionPhilip Kotler,p.243A. PRICINGPrice.The amount of money charged for a product or service, or the sum of the values thatcustomers exchange for the benefits of having or using the product or service.The only element in the marketing mix that produces revenue; other elements representcostsOne of the most flexible marketing mix elementsB. MAJOR PRICING STRATEGIES1.Value-Based Pricing.Setting price based on buyers’ perceptions of value rather thanon the seller’s cost. Value-based pricing means that the marketer cannot design aproduct and marketing program and then set the price.Good-Value Pricing.Good- value pricing is offering the right combination ofquality and good service at a fair price.oEveryday Low Pricing.The practice of charging a low initial price for anoffering and maintaining that price throughout the offering’s product lifecycle.oHigh-Low Pricing.The practice of setting the price of most products higherthan the market rate, while offering a small number of products at below-market prices.Value-Added Pricing.Attaching value-added features and services todifferentiate a company’s offers and charging higher prices.
2.Cost-Based Pricing.Setting prices based on the costs of producing, distributing, andselling the product plus a fair rate of return for effort and risk.Types of CostsFixed Costs.Costs that do not vary with production or sales level. Forexample, a company must pay each month’s bills for rent, heat, interest,and executive salaries regardless of the company’s level of output.Variable Costs.Vary directly with the level of production. Each smartphoneor tablet produced by Samsung involves a cost of computer chips, wires,plastic, packaging, and other inputs. Although these costs tend to be thesame for each unit produced, they are called variable costs because thetotal varies with the number of units produced.Total Costs. These are the sum of the fixed and variable costs for any givenlevel of production. Management wants to charge a price that will at leastcover the total production costs at a given level of production.Cost-Plus Pricing (Mark-up Pricing). Adding a standard markup to the cost ofthe product. Construction companies, for example, submit job bids by estimatingthe total project cost and adding a standard markup for profit. Lawyers,accountants, and other professionals typically price by adding a standard markupto their costs.