Pricing Short

Principles of Marketing
Nineteenth Edition
Chapter 10
Pricing: Understanding and
Capturing Customer Value
Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved
What Is a Price?
Price is the amount of money charged for a product or
service, or the sum of all the values that customers
exchange for the benefits of having or using the product or
service.
Pricing: No matter what the

state of the economy,
companies should sell value,
not price.
magicoven/
Shutterstock
Major Pricing Strategies (1 of 17)
Figure 10.1 Considerations in Setting Price
Value-based pricing uses the buyers’ perceptions of value rather than the seller’s cost.
Value-based pricing is customer driven.
Cost-based pricing is product driven.
Price is set to match perceived value.
Figure 10.2 Value-Based Pricing versus Cost-Based Pricing
Figure 10.4 Cost per Unit as a Function of Accumulated
Production: The Experience Curve
Cost-Based Pricing
Break-even pricing (target return pricing) is setting price
to break even on costs or to make a target return.
Figure 10.5 Break-Even Chart for Determining Target Return
Price and Break-Even Volume
Table 10.1 Break-Even Volume and Profits at Different Prices
Price Unit Demand Expected Unit Total Revenue Total Costs* Profit
Needed Demand (1) × (3) (4) – (5)
to Break Even at Given Price
$14 75,000 71,000 $994,000 $1,010,000 −$16,000
16 50,000 67,000 1,072,000 970,000 102,000
18 37,500 60,000 1,080,000 900,000 180,000
20 30,000 42,000 840,000 720,000 120,000
22 25,000 23,000 506,000 530,000 −24,000
*Assumes fixed costs of $300,000 and constant unit variable

costs of $10.
Other Internal and External Considerations
Affecting Price Decisions (6 of 8)
Figure 10.6 Demand Curve
Other Internal and External Considerations
Affecting Price Decisions (7 of 8)
The Market and Demand
Price Elasticity of Demand
Price elasticity is a measure of the sensitivity of demand to
changes in price.
Inelastic demand is when demand hardly changes with a
small change in price.
Elastic demand is when demand changes greatly with a
small change in price.
Price Adjustment Strategies
Table 11.2 Price Adjustments
Strategy Description
Discount and allowance Reducing prices to reward customer responses such as volume
pricing purchases, paying early, or promoting the product
Segmented pricing Adjusting prices to allow for differences in customers, products, or

locations
Psychological pricing Adjusting prices for psychological effects
Promotional pricing Temporarily reducing prices to spur short-run sales
Geographical pricing Adjusting prices to account for the geographic location of customers
Dynamic and personalized Adjusting prices continually to meet the characteristics and needs of
pricing individual customers and situations
International pricing Adjusting prices for international markets
Price Changes (4 of 5)
Figure 11.1 Responding to Competitor Price Changes
Public Policy and Pricing (1 of 5)
Figure 11.2 Public Policy Issues in Pricing
Source: Adapted from Dhruv Grewal and Larry D. Compeau, “Pricing and Public Policy: A
Research Agenda and Overview of the Special Issue,” Journal of Public Policy and
Marketing, Spring 1999, pp. 3–10.
Public Policy and Pricing (2 of 5)
Pricing Within Channel Levels
Price fixing legislation requires sellers to set prices without talking to
competitors.
Predatory pricing legislation prohibits selling below cost with the
intention of punishing a competitor or gaining higher long-term profits by
putting competitors out of business.
Predatory pricing: Some
industry
critics have
Amazon.com
accused
of pricing books at fire-sale prices
that harm competing booksellers.
But is it predatory pricing or just
plain good competitive marketing?
imageBROKER/Alamy Stock Photo
ARTICLE BASED
PRICING
• Performance pricers are adept at three core activities:
(1) identifying the optimal zone between their product/service offerings and their
customer’s needs and preferences
(2) configuring their offerings and business to dominate, not their industries, but their
particular zone of value
(3) constantly mining and minding the gap between customer value and the costs of
value delivery.
PRICING
• Within-industry differences in profitability and returns are typically much greater than
across industries. In most sectors, the top-performing company's Return on Equity
(ROE) is often better by 200%–1,000% than the relevant industry norm.
• The zone of profitable pricing thus varies by customer, product (copper versus coal),
order (same customer on the business versus leisure travel), space (distance travelled
or shipped), or time (futures contracts).
• The confluence of particular customer preferences and producer economics

establishes the optimal zone, segment by segment, POB by POB
• Dominate the zone: When a customer buys something, that customer ultimately incurs
acquisition, possession, and usage costs
PAGE 3
Paccar provides a 26-page detail
of expenses incurred during the
life of a truck and covering many
cost categories outlined in Exhibit
2.
You can input gasoline costs, “tire
rolling coefficients,” and vehicle
weight to quantify the savings of
a Paccar truck versus lower-
priced competitors.
PAGE -4
How to create more benefits and
profit simultaneously.
(1) Create more customer value
(2) Increase customers’ perception of
value
(3) cut costs without decreasing
customer value
(4) Do some or all of the above
simultaneously
PAGE 4
PAGE 5- Example of PANERA Bread
Firms profit the most when the difference between
their cost and the perceived value to the customer
is highest for the relevant piece of business.
What is a POB?
A POB is a separable buying decision, driven by a

• Customer’s buying unit and
• it’s needed in a specific context
• Made about your perceived performance
versus competition and substitute
PAGE- 5
Performance Curves are “bumpy,” meaning that value
and costs are not symmetric, although they are usually
monotonic, meaning that value rarely decreases as
performance increases.
These discontinuities are pricing opportunities.
You can add value for less than commensurate cost and
profitably mine the gap
Sometimes the bump is tied to delivery time. What’s the

value of flowers delivered on or the day after Valentine’s
Day?
PAGE 6
Zolam leaders started with a consistent message: “We must understand what is valuable in order to be valuable.”
Seven Habits of Poor Pricers
• Inability to determine or demonstrate customer value
• Average pricing seems “fair”: The seller does not determine what is fair; the
customer does. An average price across a firm’s customer base almost certainly
means that some customers are, in effect, subsidizing others.
• Cost-based pricing is easier to explain:
• Everyone else does it that way
• Incentive systems are driven by volume, not value
• Organizational silos
• “The customer tells us”

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Principles of Marketing

Pricing: No matter what the

$14 75,000 71,000 $994,000 $1,010,000 −$16,000

16 50,000 67,000 1,072,000 970,000 102,000

18 37,500 60,000 1,080,000 900,000 180,000

20 30,000 42,000 840,000 720,000 120,000

22 25,000 23,000 506,000 530,000 −24,000

*Assumes fixed costs of $300,000 and constant unit variable

Segmented pricing Adjusting prices to allow for differences in customers, products, or

Promotional pricing Temporarily reducing prices to spur short-run sales

International pricing Adjusting prices for international markets

imageBROKER/Alamy Stock Photo

• The confluence of particular customer preferences and producer economics

A POB is a separable buying decision, driven by a

These discontinuities are pricing opportunities.

Sometimes the bump is tied to delivery time. What’s the

• Cost-based pricing is easier to explain:

• Everyone else does it that way

• Incentive systems are driven by volume, not value

• “The customer tells us”

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