Chapter 10
Pricing
Understanding and Capturing Customer Value
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Pricing
Learning Objectives
• Objective 1: Answer the question “What is a price?”
and discuss the importance of pricing in today’s fast-
changing environment.
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Pricing
Learning Objectives
• Objective 2: Identify the three major pricing strategies
and discuss the importance of understanding customer-
value perceptions, company costs, and competitor
strategies when setting prices.
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Pricing
Learning Objective 1
• Answer the question “What is a price?” and discuss the
importance of pricing in today’s fast-changing
environment.
What Is a Price?
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What Is a Price?
Price is the amount of money charged for a
product or service, or the sum of all the values
that customers exchange for the benefits of
having or using the product or service.
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Pricing
Learning Objective 2
• Identify the three major pricing strategies and discuss
the importance of understanding customer-value
perceptions, company costs, and competitor strategies
when setting prices.
Major Pricing Strategies
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Major Pricing Strategies
FIGURE | 10.1 Considerations in Setting Price
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Major Pricing Strategies
Customer Value-Based Pricing
Value-based pricing uses the buyers’ perceptions of
value rather than the seller’s cost.
• Value-based pricing is customer driven.
• Cost-based pricing is product driven.
• Price is set to match perceived value.
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Major Pricing Strategies
Figure 10.2: Value-Based Pricing vs. Cost-Based Pricing
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Major Pricing Strategies
Customer Value-Based Pricing
Good-value pricing is offering just the right
combination of quality and good service at a
fair price.
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Major Pricing Strategies
Customer Value-Based Pricing
Everyday low
pricing (EDLP)
involves charging
a constant
everyday low
price with few or
no temporary
price discounts.
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Major Pricing Strategies
Customer Value-Based Pricing
High-low pricing involves charging higher prices
on an everyday basis but running frequent
promotions to lower prices temporarily on
selected items.
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Major Pricing Strategies
Customer Value-Based Pricing
Value-added pricing attaches value-added
features and services to differentiate a
company’s offers and charging higher prices.
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Major Pricing Strategies
Cost-Based Pricing
Cost-based pricing sets prices based on the
costs for producing, distributing, and selling
the product plus a fair rate of return for effort
and risk.
Copyright © 2016 Pearson Education, Inc. 10-16
Major Pricing Strategies
Cost-Based Pricing
Fixed costs are the costs that do not vary with
production or sales level.
• Rent
• Heat
• Interest
• Executive salaries
Copyright © 2016 Pearson Education, Inc. 10-17
Major Pricing Strategies
Cost-Based Pricing
Variable costs vary directly with the level of
production.
• Raw materials
• Packaging
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Major Pricing Strategies
Cost-Based Pricing
Total costs are the sum of the fixed and variable
costs for any given level of production.
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Major Pricing Strategies
Cost-Based Pricing
Cost-plus pricing adds a standard markup to the cost of
the product.
• Benefits
• Sellers are certain about costs.
• Price competition is minimized.
• Buyers feel it is fair.
• Disadvantages
• Ignores demand and competitor prices
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Major Pricing Strategies
Cost-Based Pricing
Break-even pricing
(target return
pricing) is setting
price to break even
on costs of making
and marketing a
product, or setting
price to make a
target return.
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Major Pricing Strategies
Cost-Based Pricing
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Major Pricing Strategies
Competition-based pricing
Competition-
based pricing is
setting prices
based on
competitors’
strategies, costs,
prices, and
market offerings.
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