PRICING STRATEGY REVIEWER Customer Perceptions of Value

Onsite House Rules Understanding how much value consumers place

on the benefits they receive from the product and
1. Arrive on time for class setting a price that captures that value
2. Have a good attitude
3. Contribute to discussions 3 Major pricing strategy
4. Be an active team member
5. Do not yawn 1. Cost-based pricing - Setting prices based
on costs and desired profit margin! Focus
Chapter 1: Introduction to Pricing Strategy on the seller’s cost (price floor)

2. Customer value-based pricing - Setting

prices based on customer’s perception of
value (price ceiling)

3. Competition-based pricing - Setting

prices based on anticipated or observed
price levels of competitors (price
PRICE PRIZE PRIDE reference)
PRICE TOO HIGH
PRICE TOO LOW

PRICING

a product or a service is a tougher act than it seems

PRICE

is the amount of money charged for a product or

service. It is the sum of all the values that
consumers give up in order to gain the benefits of
having or using a product or service.

PRICING STRATEGY
Chapter 1: Bounderies of Good Price
is a plan to price your products in a systematic way
to maximize profits and your marketing message The Importance of price

PRICING STRATEGIES are affected not only by the Too high

price alone
• Lost profits from lack of volume
INTERNAL FACTORS • The price is eventually dropped and the
company must fight for market interest and
brand, product features, customer groups, revenue perception repositioning
targets
Too low
EXTERNAL FACTORS
• Forgone profit in an attempt to gain volume
competitors’ product features, competitors’ pricing, which may not come
demand on the market, economic factors • Incorrectly set expectations for the product
category, making future price increases
Price is the only element in the marketing mix that being driven against a headwind of
produces - REVENUE; all other elements represent customer
costs
expectations Ultimately, lost profits, revenues, and a
Marketing Mix: shrinking/irrelevant firm

• Product Cross Functional Nature of Pricing

• Price
• Place CFO
• Promotion
• Responsible for measuring and reporting
performance
Factors to Consider When Setting Prices
 • Almost always involved in pricing decisions
from a quantitative analysis/forecasting
perspective
• General bias towards higher contribution
margins
SALES & MARKETING
• Responsible for the promotion, product
strategy, and placement, along with pricing
• Almost always involved in pricing decisions
from a value positioning perspective
• General bias towards discounting and
market share
RESEARCH & DEVELOPMENT
• Responsible for developing new products
that customers value
• Technical individuals often are challenged
to understand commercial aspects
PRODUCTION
• Responsible for quality, throughput, and
capacity utilization
• General bias towards volume to reduce
overhead allocation
CEO
• Arbitrator between competing stakeholders
Value Exchange and Profit Capture
Price is the value that the firm captures in a
mutually beneficial exchange with its customers.
The company’s reason for existence is to produce
value for customers, a value which they exchange
for cash
Customers purchase because they gain value from
the product in excess of the price they pay
The Art and Science of Pricing
SCIENCE OF PRICING
refers to gathering information, conducting
quantitative analysis, and accurately understanding
the range of prices likely to yield positive results.
ART OF PRICING
refers to influencing customer price acceptance and
adapting pricing structures according to competitive
strategies, marketing strategies, and industrial
policies
Objective
Facts
Verified
Make Decisions
Subjective
Personal Opinions
Unverified
Don’t Make Decisions
Understand Customer Perception and
willingness to pay
Setting Prices with Exchange Value Models
Consumer Behavior
Is the study of consumers and the processes they
use to choose, use (consume), and dispose of
products and services, including consumers’
emotional, mental, and behavioral responses.
Consumer behavior incorporates ideas from
several sciences including:
1. psychology
2. biology
3. chemistry
4. economics.
Why is consumer behavior important in pricing
strategy?
Studying consumer behavior is important because it
helps marketers understand what influences
consumers’ buying decisions.
There are (3) three categories of factors that
influence consumer behavior:
1.Personal factors - an individual’s interests and
opinions can be influenced by demographics (age,
gender, culture, etc.).
2.Psychological factors - an individual’s response
to a marketing message will depend on their
perceptions and attitudes.
3.Social factors - family, friends, education level,
social media, income, all influence consumers’
behavior
- did you know that 86 % of women look at
price tags when they shop, while only 72
% of men do?
Needs - are essentials, those products, and
services you literally cannot live without. Food,
shelter, clothing, transportation, and health care are
all examples of needs. (Utilitarianism needs -
objective, tangible aspects of a product or service.)
Wants - on the other hand, are products, services,
and activities that can improve your quality of life;
you don’t need them to exist, but rather you desire
to have them because you think they will make you
happy. (Hedonic Needs – for entertainment, for
fun)
ABRAHAM MASLOW (1954) Hierarchy of Human
Needs

LESSON 3: PRICING SENSITIVITY

Customer Centricity

Price sensitivity

PRICING SENSITIVITY Is a measurement of how much the price of goods

PRICE SENSITIVITY FORMULA = % CHANGE IN
QUANTITY / % CHANGE IN PRICE
1. Change in Quantity denotes the alteration
in purchased quantity by the buyer.
2. Change in Price means the
increase/decrease in the price of the same
product compared to its earlier price
and services affects customers’ willingness to buy
them.
Generally speaking, it's how demand changes with
the change in the cost of products
Why is price sensitivity important?
Keeping track of price sensitivity is vital because it
allows you to understand the impact an increase or
decrease in price will have on your profits,

What factors affect price sensitivity?

1. TYPE OF PRODUCT OR SERVICE

2. REFERENCE PRICE
3. UNIQUENESS OF PRODUCT
4. EASE OF SWITCHING
5. AVAILABLE INCOME
6. CUSTOMER ATTITUDE
TYPE OF PRODUCT OR SERVICE

Certain classes of goods and services are by nature

more sensitive than others. Examples include things
like bread, milk, gasoline, toothpaste – the items
people need to live life and do their jobs. You can
expect to see demand for these kinds of goods
holding steady no matter the economic climate.

REFERENCE PRICE

They will hold in mind a price reference – a general

understanding of the “going rate” for something
based on their observations and comparisons. BRAND ELEMENTS:

UNIQUENESS OF PRODUCT • Name

• Logo
If a business has cornered the market, for example • Symbol
with a patented device or recipe that nobody else • Package Design
can replicate, a customer may be more tolerant of
price increases. CONSUMERS PERSPECTIVE
EASE OF SWITCHING • Brands identify the source or maker of a
product and allow consumers to assign
Sometimes price sensitivity level stems from responsibility to a particular manufacturer
practical concerns about switching from one or distributor
supplier to another. There may be fears and doubts
associated with moving from one provider to • Brands provide a shorthand device or
another. means of simplification for their product
decisions
AVAILABLE PRODUCT
FIRMS PERSPECTIVE
When there is less money in the bank, price
sensitivity is bound to increase, especially for more • Legal protection for unique features or
expensive items. aspects of the product.
CUSTOMER ATTITUDE
• Intellectual property rights, giving legal title
to the brand owner.
Where one person makes a decision based
primarily on price, another might also take into
• Brand name can be protected through
account quality, looks, durability, and brand
registered trademarks
reputation and be less price-sensitive as a result.

PERSON’S TEMPERAMENT
VALUES
LIFE EXPERIENCES

BRANDS

Brand Trust
Brand Confidence
Brand Loyalty