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Chapter 10

COMM 131 Chapter Notes - Chapter 10: Marketing Mix, Price Discrimination, Geographical Pricing


Department
Commerce
Course Code
COMM 131
Professor
Ethan Pancer
Chapter
10

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Chapter 10: Pricing: Understanding and Capturing Customer Value
What is a Price?
It is the amount of money charged for a product or service, or the sum of the values that
customers exchange for the benefits of having/using the product or service
One of the most flexible of the four P’s can change quickly
o At the same time it is also the number one problem facing marketing executives
Major Pricing Strategies
Customer perceptions set the price ceiling, the cost base sets the price floor
Customer Value-Based Pricing
Setting the price based on buyers’ perceptions of value rather than on the seller’s costs
o Understanding how much value customers place on the benefits they receive from
the product and setting a price that captures this value
This strategy involves assessing customer needs and value perceptions, setting a target
price based on those perceptions, this info drives decisions about what costs can be
incurred, and the resulting product design price = perceived value
Good-Value Pricing
Involves offering just the right combination of quality and good service at a fair price
o In many cases has involved introducing less-expensive versions of established,
brand-name products
o In other cases, it involves redesigning existing brands to offer more quality for a
given price, or the same quality for less
Everyday low pricing (EDLP) involves charging a constant low price w. few/no discounts
High-Low pricing involves selling high everyday but having frequent promotions
Value Added Pricing
Involves attaching value-added features and services to differentiate a company’s offers
and charging higher prices “customers want value and are willing to pay for it”
Cost-Based Pricing
Involves setting prices based on the costs for producing, distributing, and selling the
product plus a fair rate of return for effort and risk
Cost-Plus Pricing
Involves adding a standard markup to the cost of the product
This method ignores consumer demand & competitor prices doesn’t lead to best price
Break-even pricing (target return pricing) is setting the price to breakeven on the costs of
making and marketing a product, or setting price to make a target return
o Fails to consider customer value and the relationship between price and demand
These methods might help a company determine minimum prices, but that’s it

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Competition-Based Pricing
Involves setting prices based on competitors’ strategies, prices, costs, & market offerings
Should first ask a couple of questions:
o How does competitor’s offer differ from mine in terms of customer value?
Charging higher/lower depends on if your p’s perceived value is high/low
o How strong are current competitors and what are are their pricing strategies?
If face many firms charging high price w. low value, you can charge lower
price and get rid of competition; if many low price, you can target un-
served niches seeking higher value for a higher price
Other Internal and External Considerations Affecting Pricing Decisions
Overall Marketing Strategy, Objectives, and Mix
Before setting price, the company must decide on its overall marketing strategy for p/s
o If the company has selected its target market and its positioning carefully, it’s
marketing mix strategy, including price, should be fairly straightforward
Pricing may play an important role in helping to accomplish company objectives
o Can set prices to attract new customers or to profitably retain existing ones
o Can set low prices to prevent entrants or match competitors to stabilize the market
Companies often position their products on price, and then tailor other marketing mix
decisions to the prices they want to charge
o Support this with a technique called target costing start with ideal selling price
then target costs that will ensure that the price is met
Organizational Considerations
Must decide who within the org will decide upon the price
o In small companies, usually top mgmt. sets prices rather than sale/marketing dept.
o In large companies, usually by division or product line managers
o Could be a negotiation between customers & the firm
The Market and Demand
Before setting prices, the marketer must understand the relationship between price and
demand for the company’s product
Pricing in Different Types of Markets
Pure Competition many buyers & sellers with uniform products = no single buyer/seller
has an effect on the market price not much time spent on marketing strategy
Monopolistic Competition many buyers & sellers that trade over a range of prices as
offers are differentiated minimally affected by competitor price strategies
Oligopolistic Competition few sellers that are highly sensitive to each other’s pricing
Pure Monopoly market only has one seller pricing is handled differently depending
on if it is a gov’t monopoly, a private regulated monopoly, or a private non-regulated one
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