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Chapter 12: Pricing Products and Services

Chapter 12: Pricing Products and Services

Pricing and Its Role in the Marketing Mix

  • Pricing entails exchange of value.

  • Direct revenue generator in marketing mix.

  • Smart pricing as a strategic tool for customer relationships.

Elements of Pricing

  • Definition of price includes both benefits and costs.

  • Profit = Total Revenue - Total Costs.

  • Fixed and variable costs components.

Major Pricing Strategies

  • Customer value-based pricing: prices set according to customer perceived value.

  • Cost-based pricing: prices set based on cost plus margin.

  • Competition-based pricing: influenced by competitors' prices and strategies.

  • Good-value pricing: balance of quality, service, and price.

  • Pricing tactics include EDLP (Everyday Low Pricing), High-low pricing, and Value-added pricing.

Five Critical Cs of Pricing

  • Cost: includes fixed and variable costs.

  • Customers: their willingness to pay is crucial.

  • Channels of distribution: intermediaries must profit.

  • Competition: affects buyer choices and perceptions.

  • Compatibility: between market ability to pay and company profit needs.

Five-Step Procedure for Establishing Pricing Policy

  1. Establish pricing objectives: customer value, cost, sales, market share, target return, competition.

  2. Estimate demand: demand curve understanding and elasticity.

  3. Estimate costs: total cost evaluation is critical.

  4. Analyze the external environment: PESTLE factors (Political, Economic, Social, Technological, Legal, Environmental).

  5. Select pricing strategies or tactics based on analysis.

Pricing Strategies for New Products

  • Price skimming: start high, lower later.

  • Penetration pricing: low initial price to boost adoption.

  • Break-even pricing: recover costs through calculated price.

Pricing Strategies for Existing Products

  • Product line, captive product, and bundle pricing strategies.

  • Psychological pricing affects consumer perception.

  • Economy pricing: lower prices to capture market share.

Ethical Considerations in Pricing

  • Price fixing and deceptive advertising are unethical.

  • Predatory pricing: selling below cost to eliminate competition.

  • Price discrimination: charging differently based on customer type.

  • Monopoly gouging: unjustified price increases in limited supply situations.