Price money or other considerations exchanged for th

•
Price
:
money or other considerations exchanged for th
e ownership or use of a
good/
service
• Amount paid
not always the same as the listed price because of
discounts, allowances,
and fees
•
All of the factors that increase or decrease the final price of an offering help construct a
“price equation
”: F
inal price= [list price] - [(incentives) + (allowances)] + [extra fees]
“Price as an Indicator of Value”
value = perceived benefits/price
Price is often used to indicate value when compared with the perceived benefits of a product
Value : perceived benefits/price
•
Price influences consumers’ perception of overall quality and value to consumers
•
“value” involves the judgment by a consumer of the worth and desirability of a product
or service relative to substitu
tes that satisfy the same need
• “reference value” emerges:
comparing the costs and benefits of substitute items.
“Price in the Marketing Mix”
Price is critical because of direct effect on a firm’s profits
Profit equation : Profit= Total Revenue – Total Cost
(Unit Price x Quantity Sold) – (Fixed Cost + Variable Cost)
GENERAL PRICING APPROACHES
Find an approximate pricing level to use as a reason
able starting point:
4 approaches
: demand, cost, profit, competition
1.
Demand-Oriented : weigh factors underlying expected customer tastes and preferences
a.
Skimming prices : setting highest initial price that customers who really want the
product are willing to pay because customers not very price sensitive
a.i.
Effective if 1) enough prospective customers are willing to buy the
product immediately at the high initial price, (2) the high initial price will
not attract competitors, (3) lowering the price has only a minor effect on
increasing the sales volume and reducing the unit costs, and (4)
customers interpret the high price as a signal of high quality
a.i.1.
Usually involved a patent
b.
Penetration Pricing : setting a low price on a new product to immediately appeal
to mass market

b.i.
(1) price sensitive market segments, (2) a low initial price discourages
competitors entru, and (3) unit production and marketing costs fall
dramatically as production volumes increase.
b.ii.
A firm using penetration pricing may (1) maintain the initial price for a
time to gain profit lost from its low introductory level or (2) lower the
price further, counting on the new volume to generate the necessary
profit.
c.
Prestige pricing: setting a high price so that quality or status conscious
consumers will be attracted to the product and buy it
d.
Odd-Even pricing: setting prices a few cents under an even number. Overuse
tens to mute the effect on demand
e.
Target pricing: estimate price ultimate customer would be willing to pay, then
work backwards as manufacturer to create product that achieves price
f.
Bundle pricing: 2+ products in a single package price. Consumers value package
more than individual items.