PRICING FOR VALUE
PRICE – it is the sum of values paid in exchange for having or using a product or a
service. In simple terms, it is the money charged for a product.
INTERNAL FACTORS AFFECTING PRICING DECISIONS
1) Marketing objectives
b) Current profit maximisation
c) Market share leadership
d) Product quality leadership
e) Other internal factors
2) Marketing mix strategy
4) Organisational considerations
EXTERNAL FACTORS AFFECTING PRICING DECISIONS
1) The market and demand
2) Number of competitors
3) Other external factors
MAJOR PRICING STRATEGIES
1) Cost-based pricing – it refers to pricing that according to the costs of producing
the product. It ensures that the customers don’t end up paying too much.
a) Cost-plus pricing – it involves adding a substantial amount of mark ups over
and above the cost of the product. It adds a minute amount of mark up for
commodities regularly purchased like bread and milk and has a higher amount
of profit added to furniture, laptops and other products.
b) Break-even analysis and target profit pricing – break-even is the point where
the total costs of producing the product equals the revenue and hence shows
the quantity of the product needed to be produced. Target profit pricing is
setting a target profit to be reached and setting the price of the product
2) Value-based pricing – it refers to pricing of the product based on perceived
benefits received from the product. According to this pricing strategy, a chicken
curry in a supermarket can be $7, in a local restaurant it can be about $15 and in
a 5 star restaurant up to $30 or more. If the price of the product is above the
perceived value, then the company will lose customers and if the price of the
product is below perceived value and doesn’t cover all costs then it is beneficial
to the customers but in the long run will be bad for the company itself. People
end up paying for the services, environment and ambience.
3) Economic based pricing – it refers to going-rate concern where the company will
charge the same or less for the same product in the market, paying little
attention to what are its actual costs or demand. And sealed-bid/tenders where again the price of the product is based on the competitors’ prices however
making sure that the price doesn’t go below a certain level.
4) Performance based pricing – it refers to a pricing strategy where under a special
relationship, both parties work together to enhance quali