Pricing: Understanding

& Capturing Customer

Value
Gemilang Bagus F B100224613
Silvia Choirun Nisa B100224620
Ayudya Afrin N B100224614
Table of contents
What is a
Major Pricing
01 price? 02 Strategies

Other Internal and External

Considerations Affecting Price
03 Decision
 01
What is a price?
What is a price?

In the narrowest sense, price is the amount of money changed for a product
or a service. More broadly, price is the sum of all the values that customers give up to
gain the benefits of having or using a product or service.
 Major Pricing
02 Strategies
Three types of Major Pricing
Strategies
● Customer Value-Based Pricing
● Cost-Based Pricing
● Competition-Based Pricing
Customer Value-Based Pricing

Customer Value-Based Pricing uses buyer’s perceptions of value, not the

seller’s cost, as the key to pricing. Value-based pricing means that the marketer cannot
design a product and marketing program and then set the price. Price is considered
along with all other marketing mix variables before the marketing program is set.
Customer Value-Based Pricing
1. Good-Value Pricing, offering the right combination of quality and good service at a
fair price. Example: Flying with a cheap airline.
2. Value-Added Pricing, attaching value-added features and services to differentiate a
company’s offers and charging higher prices. Example : Food & Beverage stall in
famous places.
Cost-Based Pricing

Cost-Based Pricing involves setting prices based on the costs for producing,
distributing, and selling the product plus a fair rate of return for it’s effort and risk.
Example: Ryanair and Apple. There are three types of costs, fixed costs, variable costs,
and total costs.

1. Fixed Costs (overhead), Costs that do not vary with production or sales level.
2. Variable Costs, Costs that vary directly with the level of production
3. Total Costs, the sum of the fixed and variable costs for any given level of production
Experience curve (learning
curve)
The drop in the average per-unit
production cost that comes with
accumulated production
experience.
Pricing Method
1. Cost-Plus Pricing, the simplest pricing method is cost-plus pricing (or markup
pricing)—adding a standard markup to the cost of the product
● Break Even Pricing, setting price to break even on the costs of making and marketing
a product or setting price to make a target return.
Competition-Based Pricing

Competition-based pricing involves setting prices based on competitors’

strategies, costs, prices, and market offerings. Consumers will base their judgments of a
product’s value on the prices that competitors charge for similar products. Example. The
rivalry between Coca-Cola and Pepsi. Both companies constantly monitor each other's
pricing and promotional strategies and adjust their prices accordingly to stay competitive.
 03
Other Internal &
External Considerations
Affecting Prices Decision
Overall Marketing Strategy, Objectives, and
Mix Price is only one element of the company’s broader marketing strategy. Thus,
before setting price, the company must decide on its overall marketing strategy for the
product or service. If the company has selected its target market and positioning
carefully, then its marketing mix strategy, including price, will be fairly straightforward.

Pricing may play an important role in helping to accomplish company

objectives at many levels. A firm can set prices to attract new customers or profitably
retain existing ones. It can set prices low to prevent competition from entering the
market or set prices at competitors’ levels to stabilize the market.
Overall Marketing Strategy, Objectives, and
Mix Price is a crucial product-positioning factor that defines the product’s market,
competition, and design. Many firms support such price-positioning strategies with a
technique called target costing. Target Costing is a pricing that starts with an ideal
selling price and then targets costs that will ensure that the price is met.

Other companies deemphasize price and use other marketing mix tools to
create nonprice positions. Often, the best strategy is not to charge the lowest price but
rather differentiate the marketing offer to make it worth a higher price.
Organizational Consideration
Management must decide who within the organization should set prices.
Companies handle pricing in a variety of ways. In small companies, prices are often set
by top management rather than by the marketing or sales departments.

In industries like airlines, aerospace, steel, railroads, oil companies,which

pricing is a key factor. Companies often have pricing departments to set the best prices
or help others in setting them. These departments report to the marketing department
or top management. Others who have an influence on pricing include sales managers,
production managers, finance managers, and accountants.
The Market and Demand
Good pricing starts with an understanding of how customers’ perceptions of value
affect the prices they are willing to pay. Both consumer and industrial buyers balance the price of
a product or service against the benefits of owning it.

Pricing in Different Types of Markets

The seller’s pricing freedom varies with different types of markets. Economists
recognize four types of markets, each presenting a different pricing challenge.
Pricing in Different Types of Markets
1. Pure competition, the market consists of numerous buyers and sellers trading in a
uniform commodity, such as wheat, copper, or financial securities.
2. Monopolistic competition, the market consists of many buyers and sellers who trade
over a range of prices rather than a single market price.
3. Oligopolistic competition, the market consists of a few sellers who are highly
sensitive to each other’s pricing and marketing strategies.
4. Pure monopoly, the market consists of one seller and can set the price however they
want.
The Economy
Economic conditions can have a strong impact on the firm’s pricing strategies.
Economic factors that influence pricing decision such as a boom or recession, inflation,
and interest rates
● Recession, is a condition when gross domestic product declines or when real
economic growth is negative for two or more quarters in one year .
● Inflation = is a process of increasing prices in general and continuously, an increase
in the price of one or two goods alone cannot be called inflation unless the increase
extends to other goods
● Interest rate = is the fee for borrowing money. The percentage of the debt principal
paid as fees during a period.
 The strategy used by consumers to deal with this economic reality is: by
cutting prices and offering big discounts. Lower prices make products more affordable
and help spur short-term sales. Massive discounts can lower the price of a brand in the
eyes of consumers. However, such price cuts can have undesirable long-term
consequences. Lower prices mean lower margins. Deep discounts may cheapen a brand
in consumers’ eyes.

Example of company strategy:

1. Focus marketing to more affordable items in their product mix.

2. Holding prices but redefining “value” within its value proposition.
3. Balancing the price they pay with the value they receive.
Other External Factors
Several factors that companies must consider in their external environment
when setting prices, like;
1. Companies must know the impact of prices on other parties in their environment.
2. Companies must set prices that provide fair profits for retailers, encourage their
patronage, and help them sell products effectively.
3. Government is another important external influence in pricing decisions
4. Lastly, social concerns may need to be taken into account.

In setting prices, a company's sales objectives, market share and short-term

profits may need to be adjusted to consider broader societal considerations.
Thank You