Types of Pricing

What is Price?

• Price is the money charged for a product or service.
• It is the value customers give in exchange for the benefits of using the product or service.
• Pricing is a key part of marketing and affects a company’s revenue and profits.
• It is the most flexible element of the marketing mix.

Major Considerations in Setting the Pric

• Customer perceptions of value set the highest price (ceiling).
• Product costs set the lowest price (floor).
• Companies decide the final price by considering:
  • Competitor’s pricing strategies
  • Their own marketing strategy
  • Market conditions and demand

Types of Pricing

1. Customer Value-Based Pricing

• Price is based on how much value customers see in the product, not just on costs.
• Two types:
  • Good-value pricing: Offering the right mix of quality and price (e.g., low-cost IKEA products, Dmart).
  • Value-added pricing: Adding extra features or services to justify higher prices (e.g., premium IKEA products, luxury cars, jewelry, high-end electronics).

2. Cost-Based Pricing

• Focuses on keeping production costs low.
• Includes both fixed costs (do not change) and variable costs (change with production).
• Types:
  • Cost-plus pricing: Adding a standard profit margin to the product’s cost.
  • Break-even pricing: Setting a price to cover costs or to achieve a target profit.

3. Competition-Based Pricing

• Price is set based on what competitors charge.
• The goal is to price according to the relative value of competitors' offerings.