Pricing Products
Understanding and Capturing Customer Value
What Is Price?
Price
is the amount of money you pay to get a product or service.
It is the sum of all the values that consumers give up in order to
gain the benefits of having or using a product or service .
{includes ( effort , time , perceived risk worry )}
( Comprehensive definition )
Value = total benefits – total costs
if perceived benefit ≥ perceived cost (equal or exceed) Product can be sold easily
Why is pricing important ?
1) Price is the only element in the marketing mix that produces
revenue; all other elements represent costs .
2) Nowadays , pricing is a determent factor in the decision to
purchase , for consumer it’s number (1) .
Price is the process of determining what company will receive in
exchange for it's products .
3) Pricing you can think about changing it after putting it , which is
not applicable
)‫(غير قابلة للتطبيق‬to
other elements .
4) Many factors (external) affect pricing such as :
- manufacturing cost
- Market condition
- Market place
- Quality of product .
--------------------------------------------------------------------------------Factors to Consider When Setting Prices
Customer Perception of Value
Effective customer-oriented pricing involves understanding
how much value consumers place on the benefits they receive from the
product and setting a price that captures that value .
Pricing methods / approaches (Pricing Ways ):1) Cost – based price
Cost + Margin = Price --- Cost plus
(production oriented approach)
2) Market – based price
Price – Cost = Profit --- Market based
(Market oriented approach)
(The price that can be accepted by the market – Cost = Profit )
3) Competition – based price
Price >=< Major competitors
Differences : ---- Location , Price , Image , Style
4) Value – based price
Price = Perceived value --(Pure market)
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Value-based pricing
uses the buyers’ perceptions of value, not the seller’s cost, as the
key to pricing. Price is considered before the marketing program is set.
•
Value-based pricing is customer driven
•
Cost-based pricing is product driven
Value based price --- ( Price = Perception of value )
*Value-based --- buyers not seller’s perception )‫(تصور‬
* Customer perceptions of value set the upper limit for prices (value) ,
and costs set the lower limit
* The price ceiling is determined by demand factor like price elasticity and
price points .
* The price floor is determined by production factors like costs .
Value-based pricing
• Good-value pricing
--- built in the product )‫(قيمة جيدة للتسعير‬
• Value-added pricing
--- ( Delivery , guarantee ,etc..))‫(قيمة مضافة للتسعير‬
Good-value pricing offers the right combination of quality and
good service to fair price )‫(السعر العادل‬
----------------------------------------------------------------Existing brands ‫الحالية‬
are being redesigned to offer
more quality for a given price or the same quality for less price
‫العالمات التجارية‬
Value = total benefits – total costs
Value = Benefits
Promotion
Suprise
‫تقليل الجودة مع تقليل‬
‫اكبر فى السعر‬
Benefits
more benefits
more benefits
Much more benefits
Same benefits
Less benefits
Price = Costs
<
For
For
For
For
For
Price
Same price
Less price
More price
Less price
Much less price
So , always benefit over weights price .
Everyday low pricing (EDLP) Involves charging a constant
everyday low price with few or no temporary price discounts
eg. more value ---- less price ( Supermarkets offers --- ‫) أسعارنا اليوم‬
High-low pricing involves charging higher prices on an everyday
basis but running frequent promotion to lower prices temporarily on
selected items (called pulling).
‫ فتزداد القيمة ويثبت السعر الذى تم رفعه‬Sales promotion ‫يرفع السعر ثم يعمل‬
. ‫ يشجع البيع ثم يثبت السعر‬, ‫منتج جديد سعر عالى‬
Value-added pricing attaches value-added features and services to
differentiate offers, support higher prices, and build pricing power
(Received value > Perceived sacrifice ‫) تضحية‬
) more for more )
( more for much more )
Pricing power
is the ability to escape price competition
and to justify higher prices and margins without losing market share
( Pricing power is isolating price from competition )
‫تحييد السعر‬
* Branded products use pricing power
(Superior perceived value)
--------------------------------------------------------------------------------Company and Product Costs
Cost-based pricing-- ( cost-plus ) involves setting prices based
on the costs for producing, distributing, and selling the product
plus a fair rate of return for its effort and risk
Cost based price ------ ( Price = Costs + Margin )
Most used methods of pricing (Production oriented pricing , inside – out )
Disadvantages
1. Ignores perceived value of the offer .
2. Varies ‫ يتفاوت‬from company to another (allocation of costs ‫) توزيع التكلفة‬
3. Ignores competition
4. Doesn’t guide company to reduce cost ,no rationalization , no focus
on efficiency .
Other Internal and External Considerations Affecting
Price Decisions
Companies must consider internal and external factors when
setting prices .
Internal factors
•
•
•
•
•
Marketing strategies
Company Objectives
Other element in Marketing mix
Costs
Style of management
•
•
•
•
•
•
•
External factors
Market demand ( elasticity demand )
Competitor’s strategies and prices
Customer perceptions of value
Economic conditions
Resellers’ response to price
Government
Social concerns
Pricing objectives include:
•
Survival ‫ ( البقاء‬price down )
•
Profit maximization ( up )
•
Market share leadership ( low )
•
Customer retention ‫ األحتفاظ‬and relationship building (low )
•
Attracting new customers (low)
•
Opposing competitive threats (low )
•
Increasing product excitement ( high )
Target costing (pulling ) starts with an ideal selling price based on
consumer value considerations and then targets costs that will ensure that
the price is met .
Increase price --- Increase value ‫مرسيدس ترفع اسعارها ال يقلل الطلب عليها‬
Non-price strategies differentiate the marketing offer to make it worth a
higher price . ( More value = More price) ) additional value = increase price)
Organizational considerations include:
•
Who should set the price
•
Who can influence the prices
The Market and Demand
Before setting prices, the marketer must understand the
relationship between price and demand for its products
*Trade cycle
*Income
*Sensitivity to change in price (demand elasticity)
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New-Product Pricing Strategies
Pricing Strategies
Market skimming pricing
Is a strategy with high initial prices to “skim” revenue layers
from the market .
• Product quality and image must support the price
• Buyers must want the product at the price
• Costs of producing the product in small volume should not
cancel the advantage of higher prices
• Competitors should not be able to enter the market easily
Setting high prices, then decrease conditions (eg. Nokia ,Microsoft)

Existence ‫ وجود‬of market segments can afford buying ‫تسطتيع الشراء‬
(Luxurious target market )


Differentiated product ‫منتج متميز‬
After absorbing target segment , decrease prices to absorb new
segments .
Market penetration pricing
‫ التمكن من السوق‬، ‫ امتصاص‬، ‫اختراق‬
sets a low initial price in order to penetrate the market quickly
and deeply to attract a large number of buyers quickly to gain
market share
• Price sensitive market
• Inverse relationship of production and distribution cost to
sales growth
• Low prices must keep competition out of the market
) Setting low prices to attract very large no. of consumers &
prevent potential competition )
Conditions: * No elastic demand
* No differentiated products
eg. Chinese products , Etisalat , HP
When product is well established increase prices .
* When we have a new product *
Initial Price ‫السعر األولى‬
Product ( R & D )
Demand elasticity
Scope of market ‫حجم السوق‬
Trend Price ‫اتجاه السعر‬
Skimming Pricing
High / very high
Differentiated
Low
Small
High to Low
Penetration Pricing
Low
Common/generic/less differentiated
High
Big
Low to High