MKTG10001 Lecture Notes - Lecture 15: Price Discrimination, Exit Strategy
3 Jun 2018
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MKTG10001 Semester 1 – Pricing - Objectives & Tactics
Ways in which Firms Determine Price
1. Cost-based approach (e.g. break-even, cost-plus)
2. Competition-based approach
3. Customer-based approach
Which Approach is Optimal?
o Cost-based Pricing
o For when a firm has no clue
o Leads to over-pricing when demand is low & under-pricing when
demand is high (due to scale economies)
o Competition-based pricing
o For when a firm has no clue
o Assumes there are no desperate competitors (there always will be -
willing to undercut, no regard for longevity)
• Customer-based (value) Pricing
o Firm's costs are irrelevant to customers
o Consumers pay for value
Caveat - May need to consider all three:
