Pricing

Topic Outline

• What Is Price?
• Customer Perceptions
of Value
• Company and Product
Costs
• Pricing Strategies
 What Is a Price?

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.
Factors to Consider When
Setting Prices

Customer Perceptions of Value

Company and Product Costs

Types of costs

Fixed Variable Total

costs costs costs
 Company and Product Costs

Fixed costs are the costs that do not vary with production
or sales level
• Rent
• Interest
• Executive salaries
 Company and Product Costs

Variable costs are the costs that vary with the level of
production
• Packaging
• Raw materials
 Company and Product Costs

Total costs are the sum of the fixed and variable costs for
any given level of production

Average cost is the cost associated with a given level of

output
Setting Prices based on Cost
 Common Pricing Strategies

Pricing at a Premium

With premium pricing, businesses set costs higher than their competitors.
Premium pricing is often most effective in the early days of a product’s life
cycle. Because customers need to perceive products as being worth the
higher price tag, a business must work hard to create a value perception
 Common Pricing Strategies

Market-penetration pricing
Market-penetration pricing sets a low initial price in order to penetrate the
market quickly and deeply to attract a large number of buyers. While
many new companies use this technique to draw attention away from
their competition, penetration pricing does tend to result in an initial loss
of income for the business. Over time, however, the increase in
awareness can drive profits and help small businesses to stand out from
the crowd.
 Common Pricing Strategies

Economy Pricing

Used by a wide range of businesses including generic food suppliers and

discount retailers, economy pricing aims to attract the most price-conscious
consumers. With this strategy, businesses minimize the costs associated with
marketing and production in order to keep product prices down. As a result,
customers can purchase the products they need without frills.
 Common Pricing Strategies

Price Skimming
Designed to help businesses maximize sales revenue on new products and
services, price skimming involves setting rates high during the introductory
phase. The company then lowers prices gradually as competitor goods appear
on the market. One of the benefits of price skimming is that Competitors
should not be able to enter the market easily.
 Common Pricing Strategies

Psychology Pricing
Psychology pricing refers to techniques that marketers use to encourage
customers to respond on emotional levels rather than logical ones. The
goal of psychology pricing is to increase demand by creating an illusion of
enhanced value for the consumer.
 Common Pricing Strategies

Bundle Pricing

With bundle pricing, small businesses sell multiple products for a lower rate
than consumers would face if they purchased each item individually. Bundling
goods is not only an effective way of moving unsold items that are taking up
space in your facility, but it can also increase the value perception in the eyes
of your customers, since you’re essentially giving them something for free.
Thank you