Detailed Notes on Pricing and Customer Value

Definition:
- Price is the amount charged for a product/service and reflects all values consumers give up to gain benefits from that product/service.
Revenue Generation:
- Pricing is the only marketing element that generates revenue; all others represent costs.

Pricing Strategy:
- Understand consumer value perceptions to set prices that capture this value.
Value-Based Pricing:
- Pricing is based on buyers' perceptions rather than sellers' costs.
- This approach is customer-driven and prioritizes understanding how much value customers assign to the benefits received.
Customer Value Examples:
- Examples of products consumers consider good value can influence pricing strategies.

Good-Value Pricing:
- Focuses on offering the right combo of quality/service at a fair price.
- Examples where brands are redesigned to enhance quality or decrease prices for the same value are common.
Everyday Low Pricing (EDLP):
- Involves maintaining a constant low price with minimal temporary discounts.
High-Low Pricing:
- Regularly charge high prices but offer promotions to lower prices temporarily on chosen items.

Involves attaching features/services that differentiate a product, supporting higher prices and establishing pricing power.

Cost-Based Pricing:
- Prices set based on the cost of production, distribution, and selling plus a profit margin.
- Adds a standard markup to the cost.
Types of Costs:
- Fixed Costs: Costs that remain constant regardless of production levels (e.g., rent, salaries).
- Variable Costs: Costs that vary with production levels (e.g., materials).
- Total Costs: Sum of fixed and variable costs for a particular output level.
Experience Curve:
- Shows how average cost decreases as production increases due to spreading fixed costs over more units.

Cost-Plus Pricing:
- Adds a standard markup for cost coverage and profit.
- Advantages: Certainty of costs and minimized price competition.
- Disadvantages: Ignores consumer demand/competitor pricing.
Break-even Pricing:
- Determines price point where total costs equal total revenue, yielding no profit.
Target Profit Pricing:
- Firms set prices to achieve a specific profit target.

Customer Value Perception:
- Establishes the upper limit on prices; lower limit determined by costs.
Target Costing:
- Starts with an ideal selling price based on value and then adjusts to meet this price by targeting costs.
Organizational Factors:
- Impacts on who decides and influences pricing.
Market Demand Understanding:
- Analyzing price-demand relationships before setting prices.

Demand Curve:
- Shows units sold at various prices, typically with an inverse relationship between price and demand.
Price Elasticity of Demand:
- The measure of how demand varies with price changes.
- Inelastic Demand: Little change in demand with price changes.
- Elastic Demand: Significant change in demand with minor price variation.
- Price elasticity formula: \text{Price Elasticity} = \frac{\% \text{ Change in Quantity Demanded}}{\% \text{ Change in Price}}

Considerations involve:
- Comparison of offerings with respect to consumer value.
- Strength and strategies of competitors and their pricing impact on consumer price sensitivity.