General Pricing

Approaches
Bilal Hamid (BBE/ 537)
 “The Price is what you pay;
the Value is what you receive.”
 Price
Price is the only element in the
marketing mix that produces
revenue; all other elements
represent costs.
Pricing Approach # 1
Cost-Based Approach
“Always low price. Always”.
Wal-Mart
 Cost-Plus Pricing

This pricing method, often utilized

by resellers who acquire products
from suppliers, ADDS a percentage
on product cost to sell it.

A major general retailer, such as

Wal-Mart, may apply a set
percentage for each product
category (e.g., women’s clothing,
automotive etc.)
Mark-up on Cost Method

Supposes: -
Variable Cost = 10
Fixed Cost = 300,000
Expected Unit Sales = 50,000

Fixed Cost 300, 000

Unit Cost = Variable Cost + 10 + = 16
Expected Unit Sales 50,000

Manufacturer’s Cost per Unit: = 16

Unit Cost 16
Markup Price = = = 20
(1 – Desired Return on Sales) 1 - .2

Manufacturer’s Mark-up per Unit = 20

 Break-Even Analysis and Target Profit
Pricing
Through the Break-Even analysis
company first determine the
minimum level of sales needed by
product to break even with its total
cost and then sets the suitable
target price in support to gain the
desired Target Profit through that
sale.

If the company sets higher cost its

sales will affect, and if company sets
the lower cost so its profits.
Therefore the company should set
moderate price and search ways to
lower fixed and variable costs to
achieve the Target Profit.
For Example:

Product total fixed cost is $300,000 and the variable is cost $10 per unit.

If the company sells the product at the price of $20, then the company will
required to sell 30,000 units to breakeven.

Formula:

Fixed Cost
= # of units to Break even
Price – Variable Cost

300, 000
= 30,000
20 - 10
 Break-even chart
Break-even point

1,200 Total revenue

Target profit
Cost (thousands)

1,000

800 Total cost

600

400
Fixed cost
200

0
10 20 30 40 50

Sales volume (thousands)

To Break-even with total cost the company should sale 30,000 on $20 / Unit.
Pricing Approach # 2
Buyer-Based Approach
“Things only have the value that
we give them”. -Moliere
 Value-based pricing

Value-based pricing is product

driven.

The company sets its target price

based on customer perceptions of
the product value.

As a result, pricing begins with

analyzing consumer needs and
value perceptions, and price is set
to match consumers’ perceived
value.
For Example

For example, Montblanc pens sell for several hundred dollars or more.
A less expensive pen might write as well, but some consumers place
great value on the intangibles they receive from a "fine writing
instrument.“

Value-Added Marketing:
To justify higher prices in market competition many companies adopt
value-added strategies .

For example: T.C.S courier service sends SMS alerts to their customer
upon the successful delivery of their goods. This practice is called
Value-Added Marketing.
Pricing Approach # 3
Competition-based Approach
 “Competition creates better
products, alliances create better
companies.”
-Brian Graham
 Going-rate pricing

Setting prices based on the

prices that competitors
charge for similar products.

The firm bases its price

largely on competitors' prices,
with less attention paid to its
own costs or to demand. The
firm might charge the same
as, more than, or less than its
major competitors.
Bid Pricing:

Bid pricing typically requires a marketer to submit a price to a potential

buyer that is sealed or unseen by competitors

Bid pricing occurs in several industries though it is a standard

requirement when selling to local, national and international
governments. In these situations the marketer’s pricing strategy
depends on the projected winning bid price, which is generally the
lowest price.
“A smile is a facelift that's in
everyone's price range!”.
-Tom Wilson