Chapter 10

Pricing
Price: amount of money charged for a product/service or the sum of the values that
customers exchange for the benefits of having or using the product/service.
➔ Product is the only element in the marketing mix that produces REVENUE
➔ Prices are flexible and can be changed or updated quickly

• Value-Based Pricing: setting price based on buyers’ perceptions of value

rather than on seller’s cost.

Marketing tries to convince and justify the price for buyers.

• Cost-Based Pricing: setting prices based on the cost of producing, distributing

and selling the product. + a fair rate of return (profit margin)

Types of Costs:
1. Fixed Costs: costs that do not vary with production or sales level (e.g. bills,
utilities, salaries…etc.)
2. Variable Costs: costs that vary directly with the level of production (e.g. cost of
raw materials, wires…etc.)
3. Total Costs: sum of the fixed and variable costs of any given level of production

Cost of Different Levels of Production: usually prices go down when the production
goes up
Cost of Production Experience: when production reaches high experience the
average per-unit cost drops
Cost-Plus Pricing: adding a standard markup to the cost of the product
Types of Pricing:

1. Competition-Based Pricing: setting prices based on competitors’ prices and

market offerings (e.g. Orange, Vodafone, Etisalat)
2. Good-Value Pricing: offering the right combination of quality and good
service at a fair price (e.g. low-cost airlines, small packages, value menu…etc.)
3. Everyday Low Pricing (EDLP): constant everyday low price with few or no
discounts (e.g. Hyper 1)
4. Value-Added Pricing: attaching value features to the service to differentiate the
offers and justify the charge of higher prices (e.g. Fresh Food Market,
Hotels…etc.
5. Target Costing: pricing starts with an ideal selling price then targets will
ensure that price is met. Then it will go up and down according to the market.
(Demand & Technology)

e.g. cars, compounds…. etc.

Prices Vary for Different Market Types:

1. Pure Competition → many buyers and
sellers trading Pure Competition
No single buyer/seller has much effect on the
market Monopolistic Competition
e.g. rice, oil, sugar…etc.
Oligopolistic Competition
2. Monopolistic Competition → also
many buyers/sellers but their products Pure Monopoly
can be differentiated by quality, taste,
style, features and can be targeted to different segments in the market, they
can only play with a small price change/range.
3. Oligopolistic Competition → few large sellers, they control prices together.
(e.g. telecommunication, iron industry…etc.)
4. Pure Monopoly → market is dominated by one seller

e.g. government (electricity, taxes, fuel…etc.)

Pricing Strategies Used by Marketers:
1. Market Penetration Pricing: set low prices at the beginning to attract
consumers at first.
2. Freemium Pricing: free samples, trials, etc. at first then add premium or
additional cost to additional features.
3. Premium Price: prestige pricing to create perception that product has higher
values or gives more benefits.
4. Price Skimming: price of introductory product is set higher to new or unique
products then decrease by time when products get older
5. Economy Pricing: expense is minimized to attract price of conscious
customers to ensure larger volume of sales to middle segments.
6. Bundle Pricing: bundle of products all at lower price compared to if sold
separately
7. Psychological Pricing: e.g.199 to give lower price impression
8. Promotional Pricing: discounts limited time
9. Dynamic Pricing: different prices in different times due to demand, seasons,
urgency
10. Wrap up Pricing: to clear out products before expiry or out of seasons