lOMoARcPSD|11972573

Price Level

Management (Central Luzon State University)

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Price Level
Setting Prices that capture a Share of the Value
Created 3. ASSESS BREAKEVEN SALES CHANGES
Price setting usually comes down to using  relationship between changes in Price,
informed judgment to find a price that balances Volume and Profitability is to be
costs, customer value, strategic goals, and considered in determining where to set
potential competitive responses. price levels
 establishing the breakeven sales change
necessary for a potential price change to
Six-Step Process for Setting Prices
be profitable
 “What percent change in sales would be
1. DEFINE THE REASONABLE PRICE RANGE
 Defining the viable price range starts with necessary for a proposed price change to
defining the highest and lowest price points maintain the same total profit contribution
that a business might sustainably charge for after a price change?” (BREAKEVEN SALES
the product or service. CHANGES)
 The feasible Price Ceiling is defined by the
4. GAUGE PRICE ELASTICITY
product’s value proposition
Price Elasticity
 Feasible Price Floor for a product is the
 shows exactly how responsive customer
price of the next-best competitive demand is for a product based on its price
alternative  is a measure of how reactive the marketplace is
to a change in price for a given product
 Management still needs to make a subjective
PRICE CEILING and the PRICE FLOOR represent
judgment about the applicability of the price
the “reasonable price range”
elasticity measured in the past to estimate the
 negatively differentiated : Price Ceiling is likely effect of a price change
defined by the economic value - below the
price of the next-best competing alternative 5. ACCOUNT FOR PSYCHOLOGICAL FACTORS
 Thoughtful price and value communications
 negatively differentiated: the Price Floor is can often decrease price sensitivity
defined by the product’s variable cost
6. COMMUNICATING NEW PRICES TO THE MARKET
 Communicate the rationale for the change,
especially when there is potentially an issue of
2. MAKE STRATEGIC CHOICES
“fairness.”
 pricing objectives must be set
 define pricing objectives in terms of the How to Communicate Fairness (price increase)
share of differentiating value that the firm
 Send a letter, e mail, or press release to all
attempts to capture in its price customers
 sustainable profitability should be  Avoid being opportunistic by attempting to
considered in setting the price, as low price gain share by compromising on the increase
will, other things being equal, induce  consider non-price mechanisms to “raise”
customers to migrate to a new product or prices and lessen the customer impact
service more quickly

Downloaded by Mariena (anamarielaroacera@gmail.com)

 lOMoARcPSD|11972573

Downloaded by Mariena (anamarielaroacera@gmail.com)