Pricing--Understanding and Capturing Customer Value
In the chapter 10, the authors answer the question of "What is a price?", discuss the importance of pricing in today's fast-changing environment, identify three major pricing strategies, point out the importance of understanding customer-value perceptions, company cost, and competitor strategies when setting prices, and define the other important internal and external factors affecting a firm's pricing decisions.
The authors remind us of that No matter what the state of the economy, companies should sell value, not price.
First, what is a price and what is the importance of pricing "Price can be defined narrowly as the amount of money charged for a product or service; and it can be defined more broadly as the sum of the values that consumer exchange for the benefits of having and using the product or service."(Kotler & Armstrong, 2012: p.290)
The pricing challenge is to find the price that let the company make a fair profit by getting paid for the customer value it creates.
what is the importance of pricing
--Historically, price has been a major factor affecting buyer choice. --Now price still remainsone of the most important elements that determines a firms market share and profitability, although in recent decades non-price factors have gained increasing importance. --Price is the only element in the marketing mix that produces revenue and the most flexible marketing mix elements. --Price is the number-one problem facing many marketing executives. Smart managers treat pricing as a key strategic tool for creating and capturing customer value. --As a part of company's overall value proposition, price plays a key role in creating customer value and building customer relationships.
Second, three major pricing strategies and the importance of understanding customer-value perceptions, company cost, and competitor strategies when setting price
"Setting the right price is one of the marketer's most difficult tasks. A host of factors come into play. But finding and implementing the right price strategy is critical to success."(Kotler & Armstrong, 2012: p.291)
The authors introduce three major pricing strategies. (1) The first one is Customer Value-Based Pricing that means setting price based on buyer's perceptions of value rather than on the seller's costs. Customer perceptions of the product's value set the ceiling for prices. If customers perceive that a product's price is greater than its value, they will not buy the product. Thus good pricing begins with a complete understanding of the value that a product or service creates for customers and customer perceptions of the value. In addition, the authors examine two types of value-based pricing: Good-Value Pricing which includeseveryday low pricing and high-low pricing, and Value-Added Pricing which means attaches value-added features and services to differentiate a company's offer and charging higher prices. (2) The second one is Cost-Based Pricing that means setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk. Company and product costs are an important consideration in setting prices because these costs set the floor of pricing while customer value perceptions set the price ceiling. Cost-Based Pricing including Cost-Plus Pricing and Break-Even Pricing is a product driven rather than customer driven. Both Cost-Plus Pricing and Break-Even Pricing have their own advantages and disadvantages or assumptions mainly because any pricing method that ignores demand and competitor prices is not likely to lead to the best price. (3) The third one is Competition-Based Pricing that means setting prices based on competitors' strategies, prices, costs, and market offerings. Customers or consumers base their judgments of a product's value on the prices that competitors charge for similar products. Whether the company can charge...
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