Principles of Marketing: Instructor: Dr. Salma Akter (Assistant Professor)

Principles of
Marketing
Instructor: Dr. Salma Akter
(MKT101)
(Assistant Professor)
CHAPTER 10
PRICING:
UNDERSTANDING & CAPTURING
CONSUMER VALUE
What is a Price?
Price is the amount is the
amount of money charged for a
product or service.
It is the sum of all the values
that consumers give up in order
to gain the benefits of having
or using a product or service.
It is the only element in the
marketing mix that produces
revenue; all other elements
represent costs
Major Pricing Strategies
Major Pricing Strategies
Value-Based Cost-Based Competition-

Pricing Pricing Based Pricing
Cost-Based Pricing VS Value-
Based Pricing
Cost-based Pricing
Desi Dete Conv
Set
rmin ince
gn a pric
e buye
goo e
prod rs of
d base prod
uct
pro d on uct’s
cost
duct cost value
Value-based Pricing
s
Assess Design
Set target Determi product to
customer price to ne costs deliver
needs match
and value customer
that can desired
be value at
perceptio perceived target
ns value incurred price
Customer Value-Based
Pricing
• Value-based pricing uses
the buyers’ perceptions of
value, not the sellers cost, as
the key to pricing.
– Value-based pricing is
customer driven
– Cost-based
Value-based
pricing Competition-based
Cost-based
is
Customer Value-Based
Pricing
CONSUMER PERCEPTIONS OF VALUE: Understanding how

much value consumers place on the benefits they receive from
the product and setting a price that captures that value
Value-based Cost-based Competition-based

Cost-based Pricing
Cost-based pricing involves
setting prices based on the
costs for producing,
distributing, and selling the
product plus a fair rate of
return for its effort and risk
It adds a standard markup to
the cost of the
Value-based
product
Cost-based Competition-based
Types of Costs
• Fixed Costs (Overhead)
– Costs that do not vary with production or sales
level
– Example: Monthly rent, heat, interest, salaries etc
• Variable Costs
– Costs that vary directly with the level of production
– Examples: Packaging costs, material costs etc
• Total Costs
– The sum of the fixed and variable costs for any given
level of production

Cost Plus Pricing
• Cost-plus pricing adds a standard
markup to the cost of the product
• Benefits
– Sellers are certain about costs
– Prices are similar in industry and price
competition is minimized
– Consumers feel it is fair
• Disadvantages
– Ignores demand and competitor prices
Competition-Based Pricing
• Setting prices based on
competitors’ strategies,
prices, costs and market
offerings.
• Example:
The mobile phone
operators in Bangladesh
use this strategy in
many of their offers
The Market and Demand
Good Pricing starts with an
understanding of how customers’
perceptions of value affect the prices
they are willing to pay.
Therefore, before setting prices, the

marketer must understand the
relationship between PRICE and
DEMAND for the company’s product.
Analyzing the Price-Demand
Relationship
• Demand Curve
A curve that show the
number of units the market
will buy in a given time
period, at different prices that
might be changed
• In the normal case, demand
and price are inversely
Demand Curve
Price Elasticity of Demand
Price Elasticity is a measure
of the sensitivity of demand
to changes in price.
Inelastic Demand
• When a %
change in price
of a good causes
a smaller %
change in
demand, that
good is said to
be price
inelastic.
Examples:
Elastic Demand
• When a % change
in price of a good
causes a bigger %
change in demand,
that good is said to
be price elastic.
Examples:
– Knorr Soup, Dairy
Milk Chocolate,
Toyota Allion Car,
Symphony Mobile
Phone
CHAPTER 11
ADDITIONAL PRICING STRATEGIES
Additional Pricing
Approaches
Additional Pricing Strategies
New-Product Product Mix

Price Adjustment
Pricing Pricing
Strategies
Strategies Strategies
New Product Pricing
Strategies
MARKET SKIMMING PRICING
Setting a high price for a new product
to skim maximum revenues layer by
layer from the segments willing to pay
the high price. Example:
New Product Pricing Product Mix Pricing Price Adjustments

New Product Pricing
Strategies
MARKET SKIMMING PRICING:
CONDITIONS
• Enough buyers must want the
product at the high price
• The costs of producing smaller
volume cannot be so high that they
cancel the advantage of charging
more
• Competitors
New Product Pricing
should not
Product Mix Pricing
be able to
Price Adjustments
enter the market easily and undercut
New Product Pricing
Strategies
MARKET PENETRATION PRICING
Setting a low price for a new product in
order to attract a large number of
buyers and a large market share.
Example:

New Product Pricing
Strategies
MARKET PENETRATION PRICING:
CONDITIONS
• The market must be highly price
sensitive
• Production and distribution costs
must decrease as sales volume
increases
• The low price must help keep out the
competition
New Product Pricing
and the firm
Product Mix Pricing
must
Price Adjustments
maintain its low-low price position
Product Mix Pricing
Strategies
PRODUCT LINE
PRICING
Setting the price
steps between
various products in a
product line based
on cost differences,
customer evaluations
of different features
and competitors’
prices.
Product Mix Pricing
Strategies
OPTIONAL
PRODUCT PRICING
The pricing of
optional or
accessory
products along
with a main
product.
Product Mix Pricing
Strategies
CAPTIVE PRODUCT
PRICING
Setting a price for
products that MUST
be used along with a
main product.

Product Mix Pricing
Strategies
BY-PRODUCT PRICING
Setting a price for by products in order to make
main product’s price more competitive.
Examples:
• Woodland Park Zoo collects the animal
excrements and sells them as compost under its
own brand name. (See text book)
• Fruit pulp, seeds, and peels that is left over after
being processed for fruit juice and related
beverages – can be an important raw material
for cosmetic industries.
Product Mix Pricing
Strategies
PRODUCT BUNDLE PRICING
Combining several products and offering the
bundle at a reduced price.

Price Adjustment Strategies
DISCOUNTS
A discount is a straight reduction in
price on purchase.
Cash Quantity
Discount Discount
Functiona
New Product Pricing Seasonal
Product Mix Pricing Price Adjustments
PSYCHOLOGICAL PRICING
Pricing that considers the
psychology of prices and not
simply the economics.
Consumer psychology works in
various ways when responding
to a certain price of a product
or service. Product Mix Pricing
New Product Pricing Price Adjustments
PSYCHOLOGICAL PRICING
Different aspects of consumer psychology
• Consumers usually perceive higher-priced
products as having higher quality.
• Consumers carry a reference price in their minds
and refer to it, when looking at a given product
• Consumer perception of different prices and
their numerical differences often has a left-digit
anchoring effect.

PSYCHOLOGICAL PRICING: Left-
digit Anchoring Effect
• The theory that suggests that most
consumers perceive prices based on
the left-most digit
• Example: While shopping, a consumer
will $299 to be closer to 200 than 300

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Principles of

Major Pricing Strategies

Value-Based Cost-Based Competition-

CONSUMER PERCEPTIONS OF VALUE: Understanding how

Value-based Cost-based Competition-based

Value-based Cost-based Competition-based

Therefore, before setting prices, the

New-Product Product Mix

New Product Pricing Product Mix Pricing Price Adjustments

New Product Pricing Product Mix Pricing Price Adjustments

New Product Pricing Product Mix Pricing Price Adjustments

New Product Pricing Product Mix Pricing Price Adjustments

New Product Pricing Product Mix Pricing Price Adjustments

New Product Pricing Product Mix Pricing Price Adjustments

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