PoMarketing - Chap 10 - DTUT

Chapter 10
Pricing
Topic Outline
01 What is a Price
02 Major Pricing Strategies
03 Other Internal and External Considerations
Principle of Marketing_ Ms. Dang Thi Uyen Thao

What is a PRICE?
• Narrowly, price is the amount of money charged for a

product or a service
• Broadly, price is the sum of all the values that customers
give up to gain the benefits of having or using a product or
service
• Price is the only element in the marketing mix that
produces revenue; all other elements represent costs
Major Pricing Strategies
The two extremes of PRICE: the ceiling is customer perception,
the floor is the cost of production.
1 2 3
Customer value– Cost-based pricing Competition-based
based pricing Setting prices based on pricing
Setting price based on the costs of producing, Setting prices based on
buyers’ perceptions of distributing, and selling the competitors’ strategies,
value rather than on the product plus a fair rate of prices, costs, and market
seller’s cost. return for effort and risk. offerings.
• Uses buyers’ perceptions of value as
the key to pricing => effective customer-
oriented pricing
• Pricing begins with analyzing consumer

Customer needs and value perceptions, and it then
Value-Based sets its target price based on customer
perceptions of value (perceived value)
measuring the value customers attach
Pricing to its product is difficult
• Two types of value-based pricing: good-

value pricing and value-added pricing.

Good-value pricing Value- added pricing
• Offering the right combination of quality

and good service at a fair price.
• EDLP (everyday low pricing) involves Rather than cutting prices to match
charging a constant, everyday low price competitors, they add quality,
with few or no temporary price services, and value-added features to
discounts. differentiate their offers and thus
• High-low pricing involves charging support their higher prices.
higher prices on an everyday basis but
running frequent promotions to lower
prices temporarily on selected items.

• Setting prices based on the
costs of producing,
distributing, and selling the
Cost-Based product plus a fair rate of
Pricing return for effort and risk.
• Cost-based pricing adds a

standard markup to the
cost of the product

Cost-Based Pricing
Two forms of cost: fixed and variable
Fixed costs (overhead)- costs that do not vary with production or sales
level (rent, heat, interest, and executive salaries,…)
Variable costs vary directly with the level of production
Total costs are the sum of the fixed and variable costs for any given level
of production.
=> Management wants to charge a price that will at least cover the total
production costs at a given level of production.
Mark-up = the amount you "mark up" the cost
by (the amount you increase it by) to get to
the selling price.
?? Margin vs Markup
Cost-plus pricing
(markup pricing)- Exercise: Assume a manufacturer with fixed
Adding a standard costs of $100,000, a variable cost of $10, and
markup to the cost of expected sales of 50,000 units. What is the
the product. manufacturer's markup price if it wants to earn:
a) 20% markup on sales
b) 20% markup on cost
c) Compare a and b

Break-even
pricing (target
return pricing)
the price at which total
costs are equal to total
revenue and there is
no profit

Value-Based Pricing versus Cost-Based Pricing

o- Setting prices based on competitors’
strategies, costs, prices, and market
offerings.
Competition-
Based Pricing o- Consumers will base their judgments
of a product’s value on the prices that
competitors charge for similar
products.

Other Internal and External Considerations
Affecting Price Decisions
Beyond customer value perceptions, costs, and competitor strategies

=>several additional internal and external factors.
INTERNAL FACTORS the company’s overall marketing strategy,
objectives, and marketing mix as well as other organizational
considerations
EXTERNAL FACTORS the nature of the market and demand
and other environmental factors
• Price decisions must be coordinated
with product design, distribution, and
promotion decisions to form a consistent
and effective integrated marketing mix
Overall program.
Marketing • Companies often position their products
Strategy, on price and then tailor other marketing
Objectives, and mix decisions to the prices they want to
Mix charge.
• Target costing- Pricing that starts with
an ideal selling price, then targets costs
that will ensure that the price is met.
Pricing in Different Types of Markets
• Pure competition: No single buyer or seller has

much effect on the going market price => sellers do
not spend much time on marketing strategy.
• Monopolistic competition: sellers can differentiate
their offers to buyers => a range of prices =>
The Market Sellers try to develop differentiated offers for
and Demand different segments
• Oligopolistic competition: each seller is alert and
responsive to competitors’ pricing strategies and
marketing moves
• Pure monopoly: the market is dominated by one
seller
Price Elasticity of Demand
• Price elasticity- A measure of the

sensitivity of demand to changes in price.
The Market • Demand hardly changes with a small
change in price (inelastic), demand
and Demand changes greatly with a small change in
price (elastic)
• If demand is elastic rather than inelastic =>
sellers will consider lowering their prices
=> produce more total revenue.

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Chapter 10

02 Major Pricing Strategies

03 Other Internal and External Considerations

Principle of Marketing_ Ms. Dang Thi Uyen Thao

• Narrowly, price is the amount of money charged for a

• Pricing begins with analyzing consumer

• Two types of value-based pricing: good-

Principle of Marketing_ Ms. Dang Thi Uyen Thao

• Offering the right combination of quality

Principle of Marketing_ Ms. Dang Thi Uyen Thao

• Cost-based pricing adds a

Principle of Marketing_ Ms. Dang Thi Uyen Thao

Variable costs vary directly with the level of production

Principle of Marketing_ Ms. Dang Thi Uyen Thao

Principle of Marketing_ Ms. Dang Thi Uyen Thao

Principle of Marketing_ Ms. Dang Thi Uyen Thao

Principle of Marketing_ Ms. Dang Thi Uyen Thao

Beyond customer value perceptions, costs, and competitor strategies

• Pure competition: No single buyer or seller has

• Price elasticity- A measure of the

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