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MKC1200 (16)
Chapter 12

MKC1200 - Chapter 12 (week 9 and 10).docx

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Dr Maya Mandery

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 a) Survival b) Current profit maximisation c) Market share leadership d) Product quality leadership e) Other internal factors 2) Marketing mix strategy 3) Costs 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 accordingly. 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
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