Comm 296 - Chapter 10

Comm 296 - Chapter 10 - Comm 296 Chapter 10 Pricing...

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Comm 296 Chapter 10: Pricing: Understanding and Capturing Customer Value - Firms should strive to sell value, not price WHAT IS PRICE? Price : amount of money charged for a product or a service, or the sum of the values that customers exchange for the benefits of having or using the product or service - Only element in marketing mix that produces revenue - Most flexible – easy to change and implement - Strategic marketing tool for creating and capturing customer value - Have direct impact on firm’s income small increase in price can largely affect profits - Key role in creating customer value and building customer relationships MAJOR PRICING STRATEGIES - Customer perceptions of values (price ceiling)  Internal and external considerations  Product costs - 3 major pricing strategies CUSTOMER-VALUE BASED PRICING Customer value-based pricing : setting price based on buyers’ perceptions of value rather than on the seller’s cost - Focus on customer value - Understand how much value consumers place on benefits of using/having product or service - Seller must determine price BEFORE marketing program is set - Process of pricing: o Assess customer needs and value perception o Set its target price based on customer perceptions of value o Targeted value and price influences what costs can be incurred and the resulting product design - Price is set according to how much customer’s would pay for the firm’s offer - Good value does NOT necessarily = low prices - Firm needs to measure the value consumers put on each product and its features - 2 types of value-based pricing Good-Value Pricing Good-value pricing : offering just the right combination of quality and good service at a fair price - Emergence of less-expensive versions of established, brand-name products o Eg. McDonalds and dollar menu items - Redesigning existing brands to offer more quality for a given price or same quality for less - Offer less value at rock-bottom prices o Eg. Low-cost European airline Ryanair Everyday Low Pricing (EDLP) : charging a constant, everyday low price with few or no temporary price discounts - Eg. Costco, Wal-Mart High-low Pricing : charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items - Eg. The Bay Value-Added Pricing Value-added pricing : attaching value-added features and services to differentiate a company’s offers and charging higher prices - Customers are motivate by value (what they get for what they pay), not price COST-BASED PRICING Cost-based pricing : setting prices based on the costs of producing, distributing and selling the product plus a fair rate of return for effort and risk - Firms with lower costs can set lower prices smaller margins but greater sales and profits Types of Costs Fixed costs (overhead) : costs that do not vary with production or sales level
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Comm 296 Chapter 10: Pricing: Understanding and Capturing Customer Value Variable costs : costs that vary directly with level of production Total costs
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