• The amt. of money charged for a g+s, or the sum of the values that customers
exchange for the benefits of having or using the g+s.
• The only element in the marketing mix that produces revenue.
• The others represent costs.
• One of the most flexible marketing mix elements.
• Direct impact on a firm’s bottom-line.
• A small percentage improvement in price can generate a large percentage in
• Customer perceptions of value
• Customer perceptions of the product’s value set the ceiling for prices.
• If customers perceive that the price is greater than the product’s value, they will not
• Product costs set the floor for prices.
• If the company prices the product below its costs, company profits will suffer.
• Value-based pricing
• Setting price based on buyers’ perceptions of value rather than on the seller’s cost.
• P is considered along with the other marketing mix variables before the marketing
program is set.
Good value ≠ low price.
• A company using this pricing must find out what value buyers assign to different
• Difficult to measure, as it’ll vary both for consumers and different situations.
2 types: good-value and value-added pricing
• Good-ValuePricing Value-AddedPricing
Offering just the right combination of quality Attaching value-added features and services
and good service at a fair price. to differentiate a company’s offers and
charging higher prices.
Involves introducing less-expensive versions
of established, brand-name products. Pricing power
• E.g. Armani Collezioni vs. Armani Exchange • Power to escape price competition and
justify higher prices and profit margins.
Involves redesigning existing brands to offer • To increase pricing power, a firm must
more quality for a given price or the same retain/build the value of its market offering.
quality for less. • True for suppliers of commodity
• E.g. Budget airlines products, which are characterized by
little differentiation and intense price
EDLP involves charging a constant, everyday competition.
low price with few or no temporary price • E.g. Stag umbrellas
High-low pricing involves charging higher
prices on an everyday basis but running
frequent promotions to lower prices
temporarily on selected items.
• Company and product costs
• Cost-based pricing
• Setting prices based on the costs for producing, distributing, and selling the
products plus a fair rate of return for effort and risk.
• Companies with lower costs can set lower prices that result in smaller margins but
greater sales and profits.
1. Design a good 2. Determine product 3. Set P based on 4. Convince buyers of
product costs cost product’s value
1. Assess customer 2. Set target P to 3. Determine costs 4. Design product to
needs and value match customer that can be incurred deliver desired value
perceptions perceived value at target P
• Types of costs
• FC (overhead) - costs that do not vary with production or sales level
• VC - costs that vary directly with the level of production
• Total costs - FC + VC for any given level of production
Costs at different levels of production
• Costs as a function of production experience Experience/LearningCurve
The drop in the ave./unit production cost that comes with accumulated production experience.
• Company’s unit production cost fall, and will fall faster if the company makes and sells more
during a given time period.
• Market has to stand ready to buy the higher output.
• Company must also get a large market share early in the PLC.
• Strategy: Low P --> sales will ↑ --> costs will ↓ through gaining more experience -->
• Aggressive pricing might give the product a cheap image.
• Strategy assumes that competitors are weak and not willing to fight it out by meeting the
company’s price cuts.
• While the company is building volume under 1 tech., a competitor may find a lower-cost
tech. that lets it start at prices lower than those of the market leader who still operates on the
old experience curve.
Adding a standard markup to the cost of the Break-even/target profit pricing
product Setting price to BE on the costs of making
and marketing a product, or setting price to
Doesn’t make sense, since it ignores demand make a target profit
and competitor prices. •Uses the concept of BE chart, which shows
the TC and TR expected at different sales
Popular volume levels.
• Sellers are more certain about costs than •BE volume = FC / (P - VC)
demand • Point where TR and TC lines cross.
Simplify pricing, as they don’t need to
make frequent adjustments as demand
• When all firms in the industry use this
pricing, prices tend to be similar and P-
competition is min.
• Many people feel that cost-plus pricing
fairer to buyers and sellers.
Markup P = Unit Cost / (1-Desired Return on
• Other internal and external considerations affecting price decisions
• Overall marketing strategy, objectives and mix
• Pricing strategy is largely determined by decisions on market positioning. Target costing
• Pricing that starts with an ideal selling P, then targets costs that will ensure that
the P is met.
• Best strategy is not to charge the lowest price, but to differentiate the marketing
offer to make it worth a higher price.
• When product is positioned on non-P factors, then decisions about quality,
promotion, and distribution will affect P.
• If P is a crucial positioning factor, then P will strongly affect decisions made
about the other marketing mix elements.
• Organizational considerations
• The market and demand
• Pricing in different types of markets
PureCompetition Monopolistic Oligopolistic PureMonopoly
• Many buyers and • Many buyers and • Few sellers who are • One seller
sellers trading in a sellers who trade highly sensitive to • Government,
uniform commodity. over a range of each other’s pricing private
No single buyer or prices rather than a and marketing regulated/non-
seller has much single market P. strategies. regulated monopoly.
effect on the going • Sellers can • Alert to • Pricing handled
market P. differentiate competitors’ differently in each
Seller can’t charge their offers to strategies and case.
more than the going buyers. moves • Regulated:
P. • Via free use of • Product can be Govt. permits
• Buyers can branding, uniform or the company to
obtain as much advertising and nonuniform. set rates that
as they need at personal selling • Difficult to enter the will yield a “fair
that P. • Sellers try to market return.”
• Sellers won’t develop • Non-regulated:
charge less than