Marketing process and price settingPrice setting is part of the marketing process and it requires an in-depth market reasearch. The right price can generate more sales while the wrong one can make potential customers look elsewhere. Let’s have a look at the most common pricing strategies. Show
In this short guide we approach the three major and most common pricing strategies:
Cost-based pricing StrategiesCost-based pricing strategies uses production costs as its basis for pricing and, to this base cost, a profit level must be added in order to come up with the product price. Cost-based pricing companies use their costs to find a price floor and a price ceiling. The floor and the ceiling are the minimum and maximum prices for a specific product or service – the price range. The ideal thing to do, would be setting a price in between the floor and the ceiling. Many companies mass-producing goods such as textiles, food and building materials use this pricing technique. Pros:
Cons:
Value-based pricing strategiesValue-based pricing, also known as customer-based pricing, is a pricing concept which is defined as follows: The setting of a product’s price based on the benefits it provides to consumers. In other words, it is about finding the price that your customers are willing to pay. Companies using value-based pricing consider the value of their product and their customers’ perceptions of value as the key to pricing. They determine how much money or value their product will generate for the customer – a value which translates into benefits such as increased efficiency, happiness or stability. By using this type of pricing technique, you may aim at using price to support product image, increase product sales and create product bundles in order to reduce inventory or to attract customers. Pros:
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Competition-based pricing strategiesCompetition-based pricing, also known as competitive pricing, consists in setting the price of a product based on what the competition is charging. This pricing method is normally used by businesses selling similar products, since services can vary from business to business, while the attributes of a product remain similar. In highly competitive markets, consumers judge products with similar features by the prices. Consequently, competitors may need to price their products lower or risk losing potential sales. keeping an eye on existing and emerging competition by using a competitor website price monitoring software will allow you to be more competitive. The more you know about your rivals and what they are doing, the better you can decide how to manage your prices. It is important for companies to keep their production costs in mind, as well as managing the time they spend monitoring competitors and the prices set by them. With the expansion of eCommerce and Big Data, this last monitoring factor can be seen as a downside if it is not carried out properly. Pros:
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Suggest a new Definition Proposed definitions will be considered for inclusion in the Economictimes.com Marketing
Definition: Price is the value that is put to a product or service and is the result of a complex set of calculations, research and understanding and risk taking ability. A pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst others. It is targeted at the defined customers and against competitors. Description: There are several pricing strategies: Premium pricing: high price is used as a defining criterion. Such pricing strategies work in segments and industries where a strong competitive advantage exists for the company. Example: Porche in cars and Gillette in blades. Penetration pricing: price is set artificially low to gain market share quickly. This is done when a new product is being launched. It is understood that prices will be raised once the promotion period is over and market share objectives are achieved. Example: Mobile phone rates in India; housing loans etc. Economy pricing: no-frills price. Margins are wafer thin; overheads like marketing and advertising costs are very low. Targets the mass market and high market share. Example: Friendly wash detergents; Nirma; local tea producers. Skimming strategy: high price is charged for a product till such time as competitors allow after which prices can be dropped. The idea is to recover maximum money before the product or segment attracts more competitors who will lower profits for all concerned. Example: the earliest prices for mobile phones, VCRs and other electronic items where a few players ruled attracted lower cost Asian players. These are the four basic strategies, variations of which are used in the industry.
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Is a pricing method based on the customers demand and the perceived value of the product Mcq?Pricing decisions MCQ Question 4 Detailed Solution
The correct answer is- By-product pricing.
Is a pricing method based on the customer demand and the perceived value of the product?Value-based pricing is a strategy of setting prices primarily based on a consumer's perceived value of a product or service. Value pricing is customer-focused, meaning companies base their pricing on how much the customer believes a product is worth.
What is perceived value pricing method?Definition: Perceived value pricing is that value which customers are willing to pay for a particular product or service based on their perception about the product.
Is perceived value pricing and valuePerceived value pricing is not based on the cost of the product, but it is the value which the customer thinks that he/she is deriving from consuming a product or a service. Description: Perceived value pricing is an important marketing strategy which helps firms to price a particular product in the markets.
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Is a pricing method based on the customer demand and the perceived value of the product Mcq?
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