Price

DEFINITION OF PRICE

• Some amount of money that charges for the product or services, or

• Some value that consumer exchange for the benefit of having or using the product or services.

• Price can be change quickly

FACTORS TO CONSIDER IN SETTING THE PRICES

• Customer will not buy if the price is over the ceiling.• Company will suffer loss if the price below the floor.• Factors in setting the price;1. Value-based pricing2. Cost-based pricing

Price ceiling (customer’s value perception)

Price floor ( cost of product)

Price set by company

1) Value-based pricing• Based on customer’s perception. Not the seller cost.• Company must set the customer’s perception first before

they set the price and produce the product

• There are two types of value-based pricing1. Good-value pricing2. Value-added pricing

Good-value pricing

• Just offer the quality and services at fair price.• Sometimes, good-value pricing redesigning the

existing product to offer more quality for a given price or same quality for less price.

• Good value for retailer is where they offer a lower price everyday. (e.g Econsave, Giant, Tesco)

Value added pricing• Attaching additional features and services to

differentiate and company’s offer and to support charging higher prices.

2)Cost-based pricing• Setting the price based on the cost of production,

distribution and selling the product plus some margin.

• Company with lower cost are able to set the lower price and vice versa.

• There are a few types of cost;1. Fixed cost2. Variable cost

NEW-PRODUCT PRICING STRATEGIES

• Setting the price for new product is very challenging.

• Marketer can choose 2 strategies;1.Market-skimming pricing2.Market-penetration pricing.

Market-skimming pricing• Setting the high price for the new product to skim

maximum profit.• Low volume of customer.• Suitable for products that have short life cycles or

which will face competition at some point in the future (e.g. after a patent runs out)

• Examples include: Playstation, jewellery, digital technology, new DVDs, etc.

Market-penetration pricing

• Setting the lower price to attract a large number of buyer and penetrate the market.

PRODUCT MIX PRICING STRATEGY

• Product mix is creating multiple product under one roof.

• Pricing is difficult because the various product have related demand and cost.

• There are five product pricing situation.1. Product line pricing2. Optional product pricing3. Captive product pricing4. By product pricing5. Product bundle pricing.

Product line pricing• Product line is the same product produce at

the different quality. • The price will set differently based on the

quality of the product.

Optional product pricing

• Offer to sell optional or accessory product along wit their main product.

• Marketer should decide the price for the main product and the price for main + accessory.

• Eg. car

Captive product pricing

• Company make product that must be used along with the main product.

• Normally, they will sell the main product at lower price but sell the captive product at the higher price.

• E.g printer and cartridge.

By product pricing

• By product is the product produced from the trash.

• Price is set higher that the cost of storage and delivery the trash.

Product bundle pricing.

• Seller often combine several of their product at reduce price.

• Eg. Combo set from fast-food

END OF CHAPTER 9

(HALF HOREYY!!)